~~SUTHERLAND ASSET MANAGEMENT~~READY CAPITAL CORPORATION

NOTES TO the CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Organization

~~Sutherland Asset Management~~Ready Capital Corporation (the “Company” or ~~“Sutherland”~~“Ready Capital” and together with its subsidiaries ~~“we,”~~“we”, “us” and “our”) is a Maryland corporation. ~~On October 31, 2016, we completed our path~~The Company is a multi-strategy real estate finance company that originates, acquires, finances and services small to ~~becoming~~medium balance commercial (“SBC”) loans, Small Business Administration (“SBA”) loans, residential mortgage loans, and to a ~~publicly traded company through our merger with and into a subsidiary of ZAIS Financial Corp.~~lesser extent, mortgage backed securities (“ZAIS”), with ZAIS legally surviving the merger and changing its name to Sutherland Asset Management Corporation. On November 1, 2016, our common stock began trading on the New York Stock Exchange (“NYSE”MBS”) ~~under ticker symbol “SLD”. See further discussion in Note 5, Business Combinations.~~collateralized primarily by SBC loans, or other real estate-related investments.

The Company is externally managed and advised by Waterfall Asset Management, LLC (“Waterfall” or the “Manager”), an investment advisor registered with the United States Securities and Exchange Commission under the Investment Advisors Act of 1940, as amended.

Sutherland Partners, LP (the “Operating Partnership”) holds substantially all of our assets and conducts substantially all of our business. As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, the Company owned approximately ~~96.5% and 92.9%, respectively,~~97.9% of the operating partnership units (“OP units”) of the Operating Partnership. The Company, as sole general partner of the Operating Partnership, has responsibility and discretion in the management and control of the Operating Partnership, and the limited partners of the Operating Partnership, in such capacity, have no authority to transact business for, or participate in the management activities of the Operating Partnership. Therefore, the Company consolidates the Operating Partnership.

The Company, together with its consolidated subsidiaries and variable interest entities (“VIEs”), is a specialty-finance company which acquires, originates, manages, services and finances small balance commercial (“SBC”) loans, Small Business Administration (“SBA”) loans, residential mortgage loans, and to a lesser extent, mortgage backed securities (“MBS”) collateralized primarily by SBC loans, or other real estate-related investments.

SBC loans represent a special category of commercial loans, sharing both commercial and residential loan characteristics. SBC loans are generally secured by first mortgages on commercial properties, but because SBC loans are also often accompanied by collateralization of personal assets and subordinate lien positions, aspects of residential mortgage credit analysis are utilized in the underwriting process.

The Company reports its results of operations through the following four business segments: i) ~~Loan~~ Acquisitions, ii) SBC Originations, iii) SBA Originations, Acquisitions and Servicing, and iv) Residential Mortgage Banking, with the remaining amounts recorded in Corporate- Other. Our acquisition and origination platforms consist of the following four operating segments:

·

~~Loan~~ Acquisitions. We acquire performing and non-performing SBC loans ~~and intend to continue to acquire these loans~~ as part of our business strategy. We hold performing SBC loans to term, and we seek to maximize the value of the non-performing SBC loans acquired by us through ~~proprietary loan modification programs.~~borrower based resolution strategies. We typically acquire non-performing loans at a discount to their unpaid principal balance (“UPB”) when we believe that resolution of the loans will provide attractive risk-adjusted returns. We also acquire purchased future receivables through our Knight Capital, LLC (“Knight Capital”) funding platform.

·

SBC Originations. We originate SBC loans secured by stabilized or transitional investor properties using multiple loan origination channels through our wholly-owned subsidiary, ReadyCap Commercial, LLC (“~~RCC”), a wholly-owned subsidiary of~~ ReadyCap ~~Holdings, LLC (collectively, “ReadyCap”~~Commercial”). These originated loans are generally held-for-investment or placed into securitization structures. Additionally, as part of this segment, we originate and service multi-family loan products under the ~~newly launched small balance loan program of the~~ Federal Home Loan Mortgage ~~Corporation~~Corporation’s Small Balance Loan Program (“Freddie Mac” and the “Freddie Mac program”). These originated loans are ~~either held-for-investment, placed into securitization structures, or sold.~~held for sale, then sold to Freddie Mac.

·

SBA Originations, Acquisitions, and Servicing. We acquire, originate and service owner-occupied loans guaranteed by the SBA under its Section 7(a) loan program (the “SBA Section 7(a) Program”) through our wholly-owned subsidiary, ReadyCap Lending, LLC (“~~RCL”~~ReadyCap Lending”). We hold an SBA license as one of only 14 non-bank Small Business Lending Companies (“SBLCs”) and have been granted preferred lender status by the SBA. ~~In the future, we may originate SBC loans for real estate under the SBA 504 loan program, under which the SBA~~

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Veterans Affairs (“VA”) through retail, correspondent and broker channels. These originated loans are then sold to third ~~parties.~~parties, primarily agency lending programs.

On March 29, 2019, the Company completed the acquisition of Owens Realty Mortgage, Inc. (“ORM”), through a merger of ORM with and into a wholly-owned subsidiary of the Company, in exchange for approximately 12.2 million shares of the Company’s common stock (“ORM Merger”). In accordance with the Merger Agreement, the number of shares of the Company’s common stock issued was based on an exchange ratio of 1.441 per share. The total purchase price for the merger of $179.3 million consists exclusively of the Company’s common stock issued in exchange for shares of ORM common stock and cash paid in lieu of fractional shares of the Company’s common stock, and was based on the $14.67 closing price of the Company’s common stock on March 29, 2019. Upon the closing of the transaction, the Company’s historical stockholders owned approximately 72% of the combined Company’s stock, while historical ORM stockholders owned approximately 28% of the combined Company’s stock.

The acquisition of ORM increased the Company’s equity capitalization, supported continued growth of the Company’s platform and execution of the Company’s strategy, and provided the Company with improved scale, liquidity and capital alternatives, including additional borrowing capacity. Also, the stockholder base resulting from the acquisition of ORM enhanced the trading volume and liquidity for our stockholders. The combination of the Company and ORM created cost savings and efficiencies resulting from the allocation of operating expenses over a larger portfolio and has allowed the Company to harvest value from ORM's real property assets.

On October 25, 2019, the Company acquired Knight Capital. Knight Capital is a technology-driven platform that provides working capital to small and medium businesses across the U.S. Through its platform, Knight Capital supports business operations by offering a faster alternative to conventional bank funding. The total purchase price for the merger of $27.8 million consists of $17.5 million of cash and $10.3 million of Ready Capital common stock.

The Company qualifies as a ~~REIT~~real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), commencing with its first taxable year ended December 31, 2011. To maintain its tax status as a REIT, the Company distributes at least 90% of its taxable income in the form of distributions to shareholders.

~~In the fourth quarter of 2015,~~ ~~Silverthread Falls, LLC (“Silverthread”), a brokerage subsidiary, was classified as held-for-sale due to management’s intent to sell the business, and the Company has included Silverthread in discontinued operations.~~ ~~The trade date of the Silverthread sale was February 28, 2016 and the closing occurred in May of 2016.~~

Note 2 – Basis of Presentation

The unaudited interim consolidated financial statements presented herein are as of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~2019 and for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016.~~2019. These unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”)—as prescribed by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the U.S. Securities and Exchange Commission.

The accompanying ~~unaudited~~ interim consolidated financial statements, ~~do not include all~~including the notes thereto, are unaudited and exclude some of the disclosures required in audited financial statements. Accordingly, certain information and ~~footnotes required by generally accepted accounting principles~~footnote disclosures normally included in the ~~United States of America ("GAAP") for complete consolidated financial statements. These interim unaudited interim~~ consolidated financial statements and related notes should be read in conjunction with the Company's audited financial statements for the year ended December 31, 2016, disclosed within the most recently filed 2016 annual report on Form 10-K.

have been condensed or omitted. In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all ~~adjustments, consisting of~~ normal recurring adjustments necessary for a fair statement of the results for the interim periods presented. Such operating results may not be indicative of the expected results for any other interim ~~periods~~period or the entire year.

Per ASC 805-40-45-1, we were designated as the accounting acquirer (accounting survivor) because of our larger pre-merger size relative to ZAIS, the relative voting interests of our stockholders after consummation of the merger, and our senior management and board continuing on after the consummation of the merger. As the accounting acquirer, our historicalThe accompanying unaudited consolidated interim financial statements ~~(and not those of ZAIS) are~~should be read in conjunction with the ~~historical financial statements following the consummation of the merger and are included in this quarterly report on Form 10-Q and the related unaudited interim~~audited consolidated financial statements ~~and footnotes.~~

~~Historical stockholders’ equity of the Company prior to the reverse acquisition has been retrospectively adjusted (a recapitalization)~~included in our Annual Report on Form 10-K for the ~~equivalent number of shares received by~~fiscal year ended December 31, 2019 filed with the ~~Company after giving effect to any difference in par value of ZAIS~~Securities and Exchange Commission, or the Company’s stock with any such difference recognized in equity. Retained earnings of the Company have been carried forward after the acquisition. Operations prior to the merger are those of the Company. Under the terms of the merger agreement: (1) stockholders of ZAIS and unitholders in the ZAIS operating partnership retained their existing shares and partnership units following the merger, (2) each outstanding share of Sutherland common stock was converted into 0.8356 of ZAIS common stock and (3) each outstanding partnership unit of Sutherland operating partnership was converted into 0.8356 units of limited partnership interests in the operating partnership.SEC.

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to global supply chains, and adversely impacting several industries, including but not limited to, airlines, hospitality, retail and the broader real estate industry.

The major disruption caused by COVID-19 halted most economic activity in most of the United States resulting in a significant increase in unemployment claims and will likely result in a significant decline in the U.S. Gross Domestic Product (“GDP”).COVID-19 could have a continued and prolonged adverse impact on economic and market conditions and trigger a period of global economic slowdown which could have a material adverse effect on the Company’s results and financial condition.

The full impact of COVID-19 on the real estate industry, the credit markets and consequently on the Company’s financial condition and results of operations is uncertain and cannot be predicted at the current time as it depends on several factors beyond the control of the Company including, but not limited to (i) the uncertainty around the severity and duration of the outbreak, (ii) the effectiveness of the United States public health response, (iii) the pandemic’s impact on U.S. and global economies, (iv) the timing, scope and effectiveness of additional governmental responses to the pandemic, (v) the timing and speed of economic recovery, (vi) the availability of a treatment or vaccination for COVID-19, and (vii) the negative impact on our borrowers, real estate values and cost of capital.

Use of estimates

The preparation of the Company’s unaudited interim consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited interim consolidated financial statements and the reported amounts of income and expenses during the reporting period. Management makes subjective estimates to project cash flows the Company expects to receive on its loans and securities as well as the related market discount rates, which significantly impacts the interest income, impairments, allowance for loan loss, and fair values recorded or disclosed. The effects of COVID-19 may negatively and materially impact significant estimates and assumptions used by the Company including, but not limited to estimates of expected credit losses, valuation of our equity method investments and the fair value estimates of the Company’s assets and liabilities. The uncertainty over the ultimate impact COVID-19 will have on the U.S. economony and global economy generally, and on our business in particular, makes any estimates and assumptions as of March 31, 2020 inherently less certain than they would be absent the current and potential impacts of COVID-19. Actual results could materially differ from those estimates.

Basis of ~~Consolidation~~consolidation

The accompanying unaudited interim consolidated financial statements of the Company include the accounts and results of operations of the Operating Partnership and other consolidated subsidiaries and VIEs in which we are the primary beneficiary. The unaudited interim consolidated financial statements are prepared in accordance with ASC 810, Consolidations. Intercompany accounts and transactions have been eliminated.

Reclassifications

Certain amounts reported for the prior periods in the accompanying unaudited interim consolidated financial statements have been reclassified in order to conform to the current period’s presentation.

Loans, held-for-investment and loans, held at fair value are now presented on the unaudited interim consolidated balance sheets as Loans, net. These amounts have been presented by loan program type and accounting category, within Note 6. The amounts reported for the prior periods have been reclassified in order to conform to the current period’s presentation.

Servicing rights and residential mortgage servicing rights, at fair value, are now included on the unaudited interim consolidated balance sheets as Servicing rights. These amounts have been presented by loan servicing program and accounting category, within Note 9. The amounts reported for the prior periods have been reclassified in order to conform to the current period’s presentation.

Borrowings under repurchase agreements and borrowings under credit facilities are now included on the unaudited interim consolidated balance sheets as Secured short-term borrowings. The amounts reported for the prior periods have been reclassified in order to conform to the current period’s presentation.

As described in Note 10, the historical results of our Residential mortgage banking segment has been reclassified in the unaudited interim consolidated statements of income to conform to our current period’s presentation of Gains on residential mortgage banking activities, net of variable loan expenses.

As described in Note 26, effective at the beginning of the third quarter of 2017, the Company implemented organizational changes to align its segment financial reporting more closely with its current business practices. These organizational changes resulted in securitization activities on originated SBC and SBA loans being transferred out of the Loan Acquisitions segment and into either the SBC originations or SBA originations, acquisitions, and servicing segment, based on the loan type. These organizational changes also resulted in the Company presenting ~~Corporate- Other~~ amounts separately and no longer reflecting these amounts as part of the four business segments. Prior period numbers were revised to conform to the new segment alignment and to be consistent with our current period’s presentation.

As described in Note 27, the historical results of Silverthread has been reflected in the accompanying unaudited interim consolidated statements of income for the three and nine months ended September 30, 2016 as discontinued operations and financial information related to discontinued operations has been excluded from the notes to these unaudited interim consolidated financial statements for all periods presented.

Cash and ~~Cash Equivalents~~cash equivalents

The Company ~~has accounted~~accounts for cash and cash equivalents in accordance with ASC 305, Cash and Cash Equivalents. The Company defines cash and cash equivalents as cash, demand deposits, and short-term, highly liquid investments with

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may be applied against amounts due to counterparties under existing swaps and repurchase agreement borrowings, or returned to the Company when the ~~collateral~~restriction requirements ~~are exceeded~~no longer exist or at the maturity of the swap or repurchase agreement. Restricted cash is returned to the Company when our collateral requirements are exceeded or at the maturity or termination of the derivative, borrowings under repurchase agreements and borrowings under credit facilities.

~~Short term investments~~

~~The Company accounts for short-term investments as trading securities under ASC 320,~~ ~~Investments-Debt and Equity Securities~~. Short-term investments consist of U.S. Treasury Bills with original maturities of less than a year but greater than three months. The Company holds short-term investments at fair value. Interest received and accrued as well as the accretion of purchase discount in connection with short-term investments is recorded as interest income on the unaudited interim consolidated statements of income. Changes in the fair value of short-term investments are recorded as net unrealized gain (loss) on the unaudited interim consolidated statements of income.

Loans, net

Loans, net consists of loans, held-for-investment, net of allowance for loan losses and loans, held at fair value.

Loans, held-for-investment

Loans, held-for-investment are loans acquired from third parties (“acquired loans”), loans originated by ~~ReadyCap~~the Company that we do not intend to ~~securitize or~~ sell, or securitized loans that were previously originated by ~~ReadyCap.~~us. Securitized loans remain on the Company’s balance sheet because the securitization vehicles are consolidated under ASC 810.

Acquired loans are recorded at cost at the time they are ~~acquired and any related allowance for loan loss is not carried over at the acquisition date.~~

~~Acquired loans are accounted for in accordance with ASC 310-30,~~ ~~Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality~~ (“ASC 310-30”) and referred to as “purchased credit impaired loans” (PCI loans) if both of the following conditions are met as of the acquisition date: (i) there is evidence of deterioration in credit quality of the loan since its origination and (ii) it is probable that we will not collect all contractual cash flows on the loan.

~~Acquired loans without evidence of these conditions, securitized loans, and loans originated by ReadyCap that we do not intend to securitize are accounted for under ASC 310-10,~~ ~~Receivables- Overall, (“ASC 310-10”) and are referred to as “Non-purchased credit impaired loans” (non-PCI loans).~~

~~Purchased Credit Impaired (PCI) Loans~~

~~The estimated cash flow expected for each loan is estimated at the time the loan is~~ acquired. The excess of the cash flows expected to be collected on PCI loans, measured as of the acquisition date, over the initial investment is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan using the interest method of

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using underlying third-party CMBS/CRE loan database with historical loan losses from 1998 to 2019 and (ii) probability weighted expected cash flow method, depending on the type of loan and the availability of relevant historical market loan loss data. The Company might use other acceptable alternative approaches in the future depending on, among other factors, the type of loan, underlying collateral, and availability of relevant historical market loan loss data.

The Company estimates the CECL expected credit losses for its loan portfolio at the individual loan level. Significant inputs to the Company’s forecasting methods include (i) key loan-specific inputs such as LTV, vintage year, loan-term, underlying property type, occupancy, geographic location, and others, and (ii) a macro-economic forecast, including unemployment rates, interest rates, commercial real estate prices, and others. These estimates may change in future periods based on available future macro-economic data and might result in a material change in the Company’s future estimates of expected credit losses for its loan portfolio.

In certain instances, the Company considers relevant loan-specific qualitative factors to certain loans to estimate its CECL expected credit losses. The Company considers loan investments that are both (i) expected to be substantially repaid through the operation or sale of the underlying collateral, and (ii) for which the borrower is experiencing financial difficulty, to be “collateral-dependent” loans. For such loans that ~~were current as of November 4, 2013 when~~ the Company ~~was formed or acquired thereafter. We calculated~~determines that foreclosure of the ~~cumulative default and loss severity on~~collateral is probable, the ~~acquired loans with delinquency statuses of 90+ days and applied those factors to~~Company measures the current acquired loan population. For the originated loans, our historical data does not show any defaults, therefore we used an analysis performed on the latest ReadyCap securitization to determine the likelihood of default and to determine loss severity we stressed collateral value to the current principal balanceexpected losses based on the ~~total valuation decline of SBC properties from~~difference between the ~~peak valuation in 2007 through their post-crisis low in 2010.~~

The determination of allowances for SBA loans is based upon the assignment of a probability of default on a rating scale. Each loan rating is re-evaluated at least annually for loan performance, underlying borrower financial performance or data from third party credit bureaus. The probability of default is compared to the underlying collateralfair value securing each loan and compared to each loan carrying value to calculate a loss estimate. Collectively the estimated probability of default and recovery value is compared to actual portfolio default and recovery rates as well as economic factors and adjusted when needed.

The determination of whether an allowance for loan loss is necessary is based on whether or not there is a decrease in cash flows based on consideration of factual information available at the time of assessment as well as management’s estimates of the ~~future performance~~collateral and ~~projected amount~~the amortized cost basis of the loan as of the measurement date. For collateral-dependent loans that the Company determines foreclosure is not probable, the Company applies a practical expedient to estimate expected losses using the difference between the collateral’s fair value (less costs to sell the asset if repayment is expected through the sale of the collateral) and ~~timing~~the amortized cost basis of ~~cash flows expected to be collected on~~ the loan.

While we have a formal methodology to determine the adequate and appropriate level of the allowance for loan losses, estimates of inherent loan losses involve judgment and assumptions as to various factors, including current economic conditions. Our determination of adequacy of the allowance for loan losses is based on quarterly evaluations of the above factors. Accordingly, the provision for loan losses will vary from period to period based on management's ongoing assessment of the adequacy of the allowance for loan losses.

Non-accrual loans

Non-accrual loans are the loans for which we are not accruing ~~or accreting~~ interest income. Non-accrual loans include ~~non-PCI~~PCD (“purchased credit-deteriorated”) loans when principal or interest has been delinquent for 90 days or more or when it is determined that full collection of contractual cash flows is not probable. Additionally, PCI loans for which the Company is unable to reasonably estimate the timing and amount of expected cash flows are considered to be non-accrual loans.more.

Troubled ~~Debt Restructurings~~debt restructurings

In situations where, for economic or legal reasons related to the borrower’s financial difficulties, we grant concessions for a period of time to the borrower that we would not otherwise consider, the related loans are classified as troubled debt restructurings (“TDR”). These modified terms may include interest rate reductions, principal forgiveness, term extensions, payment forbearance and other actions intended to minimize our economic loss and to avoid foreclosure or repossession of collateral. For modifications where we forgive principal, the entire amount of such principal forgiveness is immediately charged off. ~~Loans classified as TDRs, are considered impaired loans.~~ Other than resolutions such as foreclosures and sales, we may remove loans held-for-investment from TDR classification, but only if they have been refinanced or restructured at market terms and qualify as a new loan.

Generally, all loans modified in a TDR are placed or remain on non-accrual status at the time of the restructuring. However, certain accruing loans modified in a TDR that are current at the time of restructuring may remain on accrual status if payment in full under the restructured terms is expected.

~~Impaired~~Additionally, based on recently issued regulatory guidance provided by federal and state regulatory agencies, loan modifications made in response to the COVID-19 pandemic are not considered TDRs if loans

~~The Company considers a loan to be impaired when~~ were considered current at the ~~Company does not expect to collect all of~~date the contractual interest and principal payments as scheduled in the loan agreements. This includes certain non-PCI loans where we do not expect to collect all of the contractual interest and principal payments, as well as PCI loans, which experienced credit deterioration prior to acquisition.modification program was implemented.

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recurring and are reported as net unrealized gain (loss) onin the unaudited interim consolidated statements of income. For originated SBA loans, the guaranteed portion is held for sale, at fair value. For loans originated by GMFS, changes in fair value are reported as ~~gains on~~ residential mortgage banking activities ~~net of variable loan expenses, on~~in the unaudited interim consolidated statements of income.

~~The Company transfers loans held for sale, at fair value to loans, held-for-investment when the Company no longer intends to sell the loans.~~

Mortgage backed securities, at fair value

The Company accounts for MBS as trading securities and ~~are carried~~carries them at fair value under ASC 320, Investments-Debt and Equity Securities. Our MBS portfolio is comprised of asset-backed securities collateralized by interest in or obligations backed by pools of SBC loans.

Purchases and sales of MBS are recorded onas of the trade date. Our MBS securities pledged as collateral against borrowings under repurchase agreements are included in mortgage backed securities, at fair value on our unaudited interim consolidated balance sheets.

MBS are recorded at fair value as determined by market prices provided by independent broker dealers or other independent valuation service providers. The fair values assigned to these investments are based upon available information and may not reflect amounts that may be realized. We generally intend to hold our investment in MBS to generate interest income; however, we have and may continue to sell certain of our investment securities as part of the overall management of our assets and liabilities and operating our business.

Loans eligible for repurchase from Ginnie Mae

When the Company has the unilateral right to repurchase Ginnie Mae pool loans it has previously sold (generally loans that are more than 90 days past due), the Company then records the right to repurchase the loan as an asset and liability in its unaudited interim consolidated balance sheets. Such amounts reflect the unpaid principal balance of the loans.

Derivative instruments, at fair value

Subject to maintaining our qualification as a REIT for U.S. federal income tax purposes, we utilize derivative financial instruments, currently comprised of credit default swaps (“CDSs”), interest rate swaps, and interest rate lock commitments (“IRLCs”) as part of our risk management. The Company accounts for derivative instruments under ASC 815, Derivatives and Hedges.

All derivatives are reported as either assets or liabilities onin the unaudited interim consolidated balance sheets at the estimated fair value with the changes in the fair value recorded in ~~earnings.~~earnings, unless hedge accounting is elected.

~~Although permitted under certain circumstances, generally~~As of March 31, 2020, the Company ~~does not~~has offset $8.4 million of cash collateral receivable ~~or payables~~ against our gross derivative liability positions. As of ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, the cash collateral receivable ~~held~~ for derivatives that has not been offset againt our derivative ~~instruments~~liability positions is ~~$1.6~~$11.7 million and ~~$1.7~~$9.5 million, respectively, and is included in restricted cash onin the unaudited interim consolidated balance sheets.

Interest ~~Rate Swap Agreements~~rate swap agreements

An interest rate swap is an agreement between two counterparties to exchange periodic interest payments where one party to the contract makes a fixed-rate payment in exchange for a floating-rate payment from the other party. The dollar amount each party pays is an agreed-upon periodic interest rate multiplied by some pre-determined dollar principal

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losses on the IRLCs, reflected as derivative assets and derivative liabilities, respectively, are measured based on the value of the underlying mortgage loan, quoted government-sponsored enterprise ~~(“GSE”, such as~~ Fannie Mae, Freddie Mac, or and the Government National Mortgage Association ((“Ginnie ~~Mae)~~Mae”), collectively, “GSEs”) or MBS prices, estimates of the fair value of the mortgage servicing rights (“MSRs”) and the probability that the mortgage loan will fund within the terms of the IRLC, net of commission expense and broker fees. The realized and unrealized gains or losses are reported onin the unaudited interim consolidated statements of income as ~~gains on~~ residential mortgage banking ~~activities, net of variable loan expenses.~~activities. IRLCs are classified as Level 3 in the fair value hierarchy.

~~CDS~~FX forwards

FX forwards are agreements between two counterparties to exchange a pair of currencies at a set rate on a future date. FX forward contracts are used to convert the foreign currency risk to U.S. dollars to mitigate exposure to fluctuations in FX rates. The fair value adjustments are reported within net unrealized gain (loss) on financial instruments in the consolidated statements of income. FX forwards are classified as Level 2 in the fair value hierarchy.

CDSs

~~CDS~~CDSs are contracts between two parties, a protection buyer, who makes fixed periodic payments, and a protection seller, who collects the premium in exchange for making the protection buyer whole in the case of default. The fair value adjustments ~~along with~~are reported within net unrealized gain (loss) on financial instruments, while the related interest income or interest expense, are reported ~~as gain/~~within net realized gain (loss) on financial ~~instruments.~~instruments in the unaudited interim consolidated statements of income. CDS are classified as Level 2 in the fair value hierarchy.

Hedge accounting

As a general rule, hedge accounting is permitted where the Company is exposed to a particular risk, such as interest rate risk, that causes changes in the fair value of an asset or liability or variability in the expected future cash flows of an existing asset, liability, or forecasted transaction that may affect earnings.

To qualify as an accounting hedge under the hedge accounting rules (versus an economic hedge where hedge accounting is not applied), a hedging relationship must be highly effective in offsetting the risk designated as being hedged. We use cash flow hedges to hedge the exposure to variability in cash flows from forecasted transactions, including the anticipated issuance of securitized debt obligations. ASC 815 requires that a forecasted transaction be identified as either: 1) a single transaction, or 2) a group of individual transactions that share the same risk exposures for which they are designated as being hedged. Hedges of forecasted transactions are considered cash flow hedges since the price is not fixed, hence involve variability of cash flows.

For qualifying cash flow hedges, the change in the fair value of the derivative (the hedging instrument) is recorded in other comprehensive income (loss) ("OCI"), and is reclassified out of OCI and into the consolidated statements of income when the hedged cash flows affect earnings. These amounts are recognized consistent with the classification of the hedged item, primarily interest expense (for hedges of interest rate risk). If the hedge relationship is terminated, then the value of the derivative recorded in accumulated other comprehensive income (loss) ("AOCI") is recognized in earnings when the cash flows that were hedged affect earnings, so long as the forecasted transaction remains probable of occurring. For hedge relationships that are discontinued because a forecasted transaction is probable of not occurring according to the original hedge forecast (including an additional two month window), any related derivative values recorded in AOCI are immediately recognized in earnings. Hedge accounting is generally terminated at the debt issuance date because we are no longer exposed to cash flow variability subsequent to issuance. Accumulated amounts recorded in AOCI at that date are then released to earnings in future periods to reflect the difference in 1) the fixed rates economically locked in at the inception of the hedge and 2) the actual fixed rates established in the debt instrument at issuance. Because of the effects of the time value of money, the actual interest expense reported in earnings will not equal the effective yield locked in at hedge inception multiplied by the par value. Similarly, this hedging strategy does not actually fix the interest payments associated with the forecasted debt issuance.

Servicing rights

Servicing rights initially represent the fair value of expected future cash flows for performing servicing activities for others. The fair value considers estimated future servicing fees and ancillary revenue, offset by estimated costs to service

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the loans, and generally declines over time as net servicing cash flows are received, effectively amortizing the servicing right asset against contractual servicing and ancillary fee income.

Servicing rights are recognized upon sale orof loans, including a securitization of loans accounted for as a sale in accordance with GAAP, if servicing is retained. For servicing rights, gains related to servicing rights retained is included in ~~other income on~~net realized gain (loss) in the unaudited interim consolidated statements of income. For residential mortgage servicing rights, gains on servicing rights retained upon sale of a loan are included in ~~gains on~~ residential mortgage banking activities ~~net of variable loan expenses, on~~in the unaudited interim consolidated statements of income.

The Company treats its servicing rights and residential mortgage servicing rights as two separate classes of servicing assets based on the class of the underlying mortgages and it treats these assets as two separate pools for risk management purposes. Servicing rights relating to the Company’s servicing of loans guaranteed by the SBA under its Section 7(a) loan program and servicing rights related to the Freddie Mac program are accounted for under ASC 860, Transfers and Servicing, while the Company’s residential mortgage servicing rights are accounted for under the fair value option under ASC 825, Financial Instruments.

Servicing rights – SBA and Freddie Mac

SBA and Freddie Mac servicing rights are initially recorded at fair value and subsequently carried at amortized cost. We capitalize the value expected to be realized from performing specified servicing activities for others. Servicing rights are amortized in proportion to and over the period of estimated servicing income, and ~~is tested~~are evaluated for potential impairment quarterly.

For purposes of testing our servicing rights for impairment, we first determine whether facts and circumstances exist that would suggest the carrying value of the servicing asset is not recoverable. If so, we then compare the net present value of servicing cash flow with its carrying value. The estimated net present value of servicing cash flows is determined using discounted cash flow modeling techniques, which require management to make estimates regarding future net servicing cash flows, taking into consideration historical and forecasted loan prepayment rates, delinquency rates and anticipated maturity defaults. If the carrying value of the servicing rights exceeds the net present value of servicing cash flows, the servicing rights are considered impaired and an impairment loss is recognized in earnings for the amount by which carrying value exceeds the net present value of servicing cash flows.

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management believes market participants would use in their determinations of fair value. The key assumptions used in the estimation of the fair value of MSRs include prepayment ~~speeds,~~rates, discount rates, default rates, and cost ~~to service, and contractual~~of servicing ~~fees.~~rates. Residential MSRs are classified as Level 3 in the fair value hierarchy.

Real estate, held for sale

Real estate, held for sale, includes purchased real estate and real estate acquired in full or partial settlement of loan obligations, generally through foreclosure, that is being marketed for sale. Real estate, held for sale is recorded at acquisition at the property’s estimated fair value less estimated costs to sell.

After acquisition, costs incurred relating to the development and improvement of property are capitalized to the extent they do not cause the recorded value to exceed the net realizable value, whereas costs relating to holding and disposition of the property are expensed as incurred. After acquisition, real estate held for sale is analyzed periodically for changes in fair values and any subsequent write down is charged through impairment.

The Company records a gain or loss from the sale of real estate when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of real estate to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether the collectability of the transaction price is probable. Once these criteria are met, the real estate is derecognized and the gain or loss on sale is recorded upon transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. This adjustment is based on management’s estimate of the fair value of the loan extended to the buyer to finance the sale.

Investment in unconsolidated joint ventures

According to ASC 323, Equity Method and Joint Ventures, investors in unincorporated entities such as partnerships and unincorporated joint ventures generally shall account for their investments using the equity method of accounting if the investor has the ability to exercise significant influence over the investee. Under the equity method, we recognize our allocable share of the earnings or losses of the investment monthly in earnings and adjust the carrying amount for our share of the distributions that exceed our earnings.

Purchased future receivables

Through Knight Capital, the Company provides working capital advances to small businesses through the purchase of their future revenues. The Company enters into a contract with the business whereby the Company pays the business an upfront amount in return for a specific amount of the business’s future revenue receivables, known as payback amounts. The payback amounts are primarily received through daily payments initiated by automated clearing house (“ACH”) transactions.

Revenues from purchased future receivables are realized when funds are received under each contract. The allocation of the amount received is determined by apportioning the amount received based upon the factor (discount) rate of the business's contract. Management believes that this methodology best reflects the effective interest method.

The Company has established an allowance for doubtful purchased future receivables. An increase in the allowance for doubtful purchased future receivables results in a charge to income and is reduced when purchased future receivables are charged-off. Purchased future receivables are charged-off after 90 days past due. Management believes that the allowance reflects the risk elements and is adequate to absorb losses inherent in the portfolio. Although management has performed this evaluation, future adjustments may be necessary based on changes in economic conditions or other factors.

Intangible assets

~~Intangible~~The Company accounts for intangible assets ~~are accounted for~~ under ASC 350, ~~Intangibles-Goodwill~~Intangibles- Goodwill and Other. ~~As of September 30, 2017 and December 31, 2016, the~~The Company’s ~~identifiable~~ intangible assets include an SBA license, ~~for our lending operations as well as~~capitalized software, a broker network, trade ~~name, customer relationships, a~~names, and an acquired favorable ~~lease, and other licenses, obtained as part of the ZAIS merger transaction.~~lease. The Company ~~determined~~capitalizes software costs expected to result in long-term operational benefits, such as replacement systems or new applications that result in significantly increased operational efficiencies or functionality. All other costs incurred in connection with internal use software are expensed as incurred. The Company initially records its ~~SBA license has an indefinite life, while~~intangible assets at cost or fair value and will test for impairment if a triggering event occurs. Intangible assets are included within

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other assets in the ~~other intangibles acquired as part of the ZAIS merger transaction are finite-lived.~~consolidated balance sheets. The Company amortizes intangible assets with identified estimated useful lives on a straight-line basis over their estimated useful lives.

Goodwill

The Company ~~initially records its intangible assets at cost and subsequently tests~~recorded goodwill in connection with the Company’s acquisition of Knight Capital. Goodwill is not amortized, but rather, is tested for impairment ~~on an annual basis. Intangible~~annually or more frequently if events or changes in circumstances indicate potential impairment. Goodwill represents the excess of the consideration paid over the fair value of net assets ~~are included within other assets on~~acquired in connection with the ~~unaudited interim consolidated balance sheets.~~acquisition of Knight.

In testing goodwill for impairment, the Company follows ASC 350, Intangibles- Goodwill and Other, which permits a qualitative assessment of whether it is more likely than not that the fair value of the reporting unit is less than its carrying value including goodwill. If the qualitative assessment determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying value including goodwill, then no impairment is determined to exist for the reporting unit. However, if the qualitative assessment determines that it is more likely than not that the fair value of the reporting unit is less than its carrying value including goodwill, we compare the fair value of that reporting unit with its carrying value, including goodwill. If the carrying value of a reporting unit exceeds its fair value, goodwill is considered impaired with the impairment loss equal to the amount by which the carrying value of the goodwill exceeds the implied fair value of that goodwill.

Deferred financing costs

Costs incurred in connection with our secured borrowings ~~under credit facilities~~ are accounted for under ASC 340, Other Assets and Deferred Costs. Deferred costs are capitalized and amortized using the effective interest method over the respective financing term with such amortization reflected on our unaudited interim consolidated statements of income as a component of interest expense. ~~Our deferred~~Deferred financing costs may include legal, accounting and other related fees. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. ~~Unamortized~~Pursuant to the adoption of ASU 2015-03, unamortized deferred financing costs related to securitizations and note issuances are presented onin the unaudited interim consolidated balance sheets as a direct deduction from the associated liability.

Due from ~~Servicers~~servicers

The ~~loan-servicing~~loan servicing activities of the Company’s ~~SBC Loan Acquisitions~~acquisitions and SBC ~~Originations~~originations reportable segments are performed primarily by third-party servicers. SBA loans originated by and held at RCL are internally serviced. Residential mortgage loans originated by and held at GMFS are both serviced by third-party servicers and internally

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and pursue collection of any outstanding debt amount from us. Interest paid and accrued in connection with credit facilities is recorded as interest expense onin the unaudited interim consolidated statements of income.

Borrowing under repurchase agreements

Borrowings under repurchase agreements are accounted for under ASC 860, Transfers and Servicing. Investment securities financed under repurchase agreements are treated as collateralized borrowings, unless they meet sale treatment or are deemed to be linked transactions. Through ~~September 30, 2017,~~March 31, 2020, none of our repurchase agreements have been accounted for as components of linked transactions. All securities financed through a repurchase agreement have remained on our unaudited interim consolidated balance sheets as an asset and cash received from the lender was recorded on our unaudited interim consolidated balance sheets as a liability. Interest paid and accrued in connection with our repurchase agreements is recorded as interest expense onin the unaudited interim consolidated statements of income.

~~Promissory note,~~Securitized debt obligations of consolidated VIEs, net

~~The~~Since 2011, we have engaged in several securitization transactions, which the Company accounts for ~~promissory notes~~ under ASC ~~470,~~ ~~Debt.~~ ~~There~~810. Securitization involves transferring assets to an SPE, or securitization trust, and this SPE issues debt instruments. The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and is required to consolidate the VIE. The consolidation of the SPE includes the issuance of senior securities to third parties, which are noshown as securitized debt obligations of consolidated VIEs in the consolidated balance sheets.

Debt issuance costs ~~associated with the outstanding note. The note is collateralized by loans, held-for-investment and have maturity dates within five years~~related to securitizations are presented as a direct deduction from the ~~unaudited interim consolidated balance sheet date. Interest paid~~carrying value of the related debt liability. Debt issuance costs are amortized using the effective interest method and ~~accrued~~are included in ~~connection with the promissory note is recorded as~~ interest expense onin the unaudited interim consolidated statements of income.

~~Senior secured note, net~~

~~The Company accounts for secured debt offerings under ASC 470,~~ ~~Debt.~~ Pursuant to the adoption of ASU 2015-03, the Company’s senior secured note is presented net of debt issuance costs. These notes are collateralized by loans, MBS, and retained interests of consolidated VIE’s. Interest paid and accrued in connection with promissory notes is recorded as interest expense on the unaudited interim consolidated statements of income.

Convertible note, net

ASC 470~~Debt~~, requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. ASC 470-20 requires that the initial proceeds from the sale of these notes be allocated between a liability component and an equity component in a manner that reflects interest expense at the interest rate of similar nonconvertible debt that could

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Guaranteed loan financing

Certain partial loan sales do not qualify for sale accounting under ASC 860~~Transfers and Servicing~~ because these sales do not meet the definition of a “participating interest,” as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest remain as an investment onin the unaudited interim consolidated balance sheets and the proceeds from the portion sold is recorded as guaranteed loan financing in the liabilities section of the unaudited interim consolidated balance sheets. For these partial loan sales, the interest earned on the entire loan balance is recorded as interest income and the interest earned by the buyer in the partial loan sale is recorded within interest expense in the accompanying unaudited interim consolidated statements of income.

~~Contingent consideration~~

Contingent consideration represent future payments of cash or equity interests to the former owners of GMFS, which was acquired on October 31, 2016. The contingent consideration was initially recorded on the date of acquisition at fair value in the unaudited interim consolidated balance sheet and is subsequently remeasured each reporting period at fair value with the change in the fair value recorded in earnings in the accompanying unaudited interim consolidated statements of income.

Repair and denial reserve

The repair and denial reserve represents the potential liability to the SBA in the event that we are required to make ~~whole~~ the SBA whole for reimbursement of the guaranteed portion of SBA loans. We may be responsible for the guaranteed portion of SBA loans if there are lien and collateral issues, unauthorized use of proceeds, liquidation deficiencies, undocumented servicing actions or denial of SBA eligibility. This reserve is calculated using an estimated frequency of a repair and denial event upon default, as well as an estimate of the severity of the repair and denial as a percentage of the guaranteed balance.

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We have elected the fair value option for certain loans held-for-sale originated by ~~ReadyCap that~~ the Company ~~intends~~that we intend to ~~securitize or~~ sell in the near term. The fair value elections for loans, held for sale at fair value originated by ~~ReadyCap~~the Company were made due to the short-term nature of these instruments.

We have elected the fair value option for loans held-for-sale originated by GMFS that the Company intends to sell in the near term. We have elected the fair value option for certain residential mortgage servicing rights acquired as part of the merger transaction.

Earnings per ~~Share~~share

We present both basic and diluted earnings per share (“EPS”) amounts in our unaudited interim consolidated financial statements. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS reflects the maximum potential dilution that could occur from our share-based compensation, consisting of unvested restricted stock units (“RSUs”), unvested restricted stock awards (“RSAs”), ~~and~~ as well as “in-the-money” conversion options associated with our outstanding convertible senior notes. Potential dilutive shares are excluded from the calculation if they have an anti-dilutive effect in the period. ~~The Company’s earnings per share has been updated retroactively as a result of the reverse merger.~~

All of the Company’s unvested RSUs and unvested RSAs contain rights to receive non-forfeitable dividends and, thus, are participating securities. Due to the existence of these participating securities, the two-class method of computing EPS is required, unless another method is determined to be more dilutive. Under the two-class method, undistributed earnings are reallocated between shares of common stock and participating securities.

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nonfinancial assets where the seller has continuing involvement. These additional revisions also did not materially impact the Company.

Interest ~~Income~~income

Interest income on ~~non-PCI~~ loans, held-for-investment, loans, held at fair value, loans, held for sale, at fair value, and MBS, at fair value is accrued based on the outstanding principal amount and contractual terms of the instrument. Discounts or premiums associated with the loans and investment securities are amortized or accreted into interest income as a yield adjustment on the effective interest method, based on contractual cash flows through the maturity date of the investment. On at least a quarterly basis, we review and, if appropriate, make adjustments to the accrual status of the asset. If the asset has been delinquent for the previous 90 days, the asset status will turn to non-accrual, and recognition of interest income will be suspended until the asset resumes contractual payments for three consecutive months.

Realized ~~Gains (Losses)~~gains (losses)

Upon the sale or disposition (not including the prepayment of outstanding principal balance) of loans or securities, the excess (or deficiency) of net proceeds over the net carrying value or cost basis of such loans or securities is recognized as a realized ~~gain/loss. Outstanding interest balances for payments in full are reported in interest income.~~gain (loss).

Origination ~~Income~~income and ~~Expense~~expense

Origination income represents fees received for origination of either loans, held at fair value, loans, held for sale, at fair value, or loans, held-for-investment. For loans held, at fair value, and loans, held for sale, at fair value, pursuant to ASC 825, the Company reports origination fee income as revenue and fees charged and costs incurred as expenses. These fees and costs are excluded from the fair value. For originated loans, held-for-investment, under ASC 310-10, the Company defers these origination fees and costs at origination and amortizes them under the effective interest method over the life of the loan. Origination fees and expenses for ~~ReadyCap~~ loans, held at fair value and loans, held for sale, at fair value, are presented in the unaudited interim consolidated statements of income inas components of other income and operating expenses. Origination fees ~~and expenses~~ for residential mortgage loans originated by GMFS are presented in the unaudited interim consolidated statements of income in ~~gains of~~ residential mortgage banking activities, ~~net of~~while origination expenses are presented within variable ~~loan expenses.~~expenses on residential mortgage banking activities. The amortization of net origination fees and expenses for loans, held-for-investment are presented in the unaudited interim consolidated statements of income inas a component of interest income.

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provisions recorded against the loan indemnification ~~reserve~~reserve. Loan origination costs directly attributable to the processing, underwriting, and closing of a loan are included in ~~gains~~the gain on ~~residential mortgage banking activities, net~~sale of ~~variable loan expenses, in the Company’s unaudited interim consolidated statements of income.~~

Loan origination fee income represents revenue earned from originating mortgage loans and is included in gains on residential mortgage banking activities, net of variable loan expenses in the Company’s unaudited interim consolidated statements of income. Loan origination fees relating to mortgage loans held for sale ~~are reflected in gains on residential mortgage banking activities, net of variable loan expenses,~~ when loans are sold.

Foreign currency transactions

Assets and liabilities denominated in non-U.S. currencies are translated into U.S. dollars using foreign currency exchange rates prevailing at the end of the reporting period. Revenue and expenses are translated at the average exchange rates for each reporting period. Foreign currency remeasurement gains or losses on transactions in nonfunctional currencies are recognized in earnings. Gains or losses on translation of the financial statements of a non-U.S. operation, when the functional currency is other than the U.S. dollar, are included, net of taxes, in the consolidated statements of comprehensive income.

Note 4 – Recently ~~Issued Accounting Pronouncements~~issued accounting pronouncements

Financial Accounting Standards Board ("FASB") Standards adopted during ~~2017~~2020


Standard	Summary of guidance		Effects on financial statements
ASU ~~2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern~~		~~Explicitly requires management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances.~~		~~The adoption of this standard did not have an impact on our unaudited interim consolidated financial statements.~~
~~Issued August 2014~~			
~~ASU 2016-09, Compensation—Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting~~		~~Simplifies the accounting for employee share-based payment transactions, including the accounting for associated income taxes and forfeitures.~~		~~The adoption of this standard did not have an impact on our unaudited interim consolidated financial statements.~~
~~Issued March 2016~~			
~~ASU 2016-17, Consolidation (Topic 810) – Interests Held through Related Parties That Are under Common Control~~		When assessing which party is the primary beneficiary in a VIE requires that the decision maker considers interests held by entities under common control on a proportionate basis instead of treating those interests as if they were that of the decision maker itself, as current GAAP requires.		~~The adoption of this standard did not have an impact on our unaudited interim consolidated financial statements.~~
~~Issued October 2016~~			

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Note 5 – Business Combinations

Acquisition of Owens Realty Mortgage, Inc.

On ~~October 31, 2016, Sutherland merged with and~~November 7, 2018, the Company entered into ~~a subsidiary of ZAIS, with ZAIS legally surviving the merger and changing its name to Sutherland Asset Management Corporation (the “combined company”). Per the terms of the~~an Agreement and Plan of Merger ~~(“Merger Agreement”), dated as of April 6, 2016,~~ as amended, as(the “Merger Agreement”) with ORM, a specialty finance company that focused on the origination, investment, and management of May 9, 2016 and August 4, 2016, (i) Sutherland merged with and into ZAIS Merger Sub, LLC, with ZAIS Merger Sub, LLC surviving the merger transaction and continuing as a wholly-owned subsidiary of ZAIS and (ii) Sutherland Partners, L.P. merged with and into ZAIS Financial Partners, L.P., with ZAIS Financial Partners, L.P. legally surviving the merger transaction, continuing as a wholly-owned subsidiary of ZAIS, and changing its namecommercial real estate loans. Pursuant to ~~Sutherland Partners, L.P. ZAISwas re-named Sutherland Asset Management Corporation as part of the merger transaction (as a whole, the “Merger Transaction” or “merger”).~~

Prior to and as a condition to the merger, ZAIS disposed of its seasoned re-performing mortgage loan portfolio, such that upon the completion of the merger, ZAIS’s assets largely consisted of its GMFS origination subsidiary, cash, conduit loans and residential mortgage backed securities (“RMBS”). Additionally, prior to the closing, ZAIS completed a tender offer, purchasing 4,185,478 shares of common stock from existing ZAIS stockholders at a purchase price of $15.37 per share. In connection with the merger, 25,870,420 shares of common stock were issued to our pre-merger common stockholders, and 2,288,663 units in the operating partnership subsidiary (“OP units”) were issued to our pre-merger OP unit holders. Our pre-merger stockholders held approximately 86% of our stockholders’ equity as a result of the merger, with continuing ZAIS stockholders holding approximately 14% of our stockholders’ equity, on a fully diluted basis.

~~Under the terms of~~ the Merger Agreement, the Company acquired ORM in ~~connection~~a stock-for-stock transaction with an aggregate purchase price equal to 99.0% of ORM’s book value. Upon the ~~Merger Transaction,~~closing, each outstanding share of ~~the Company and each outstanding unit of Sutherland Partners, L.P.~~ORM’s common stock was converted into the right to receive ~~0.8356 (the “Exchange Ratio”)~~1.441 shares of the Company common stock, based on a fixed exchange ratio.

On March 29, 2019, the Company completed the acquisition of ORM, through a merger of ORM with and into a wholly owned subsidiary of the Company, in ~~ZAIS or units in ZAIS Financial Partners, L.P., respectively. The Exchange Ratio was determined by dividing~~exchange for approximately 12.2 million shares of the Company’s ~~adjusted book value per share on July 31, 2016 (the “Determination Date”) by~~common stock. The total purchase price for the ~~ZAIS adjusted book~~merger of $179.3 million consisted exclusively of the Company’s common stock issued in exchange for shares of ORM common stock and cash paid in lieu of fractional shares of the Company’s common stock, and was based on the ~~Determination Date.~~$14.67 closing price of the Company’s common stock on March 29, 2019.

The consideration transferred was allocated to the assets acquired and liabilities assumed based on their respective fair values. The methodologies used and key assumptions made to estimate the fair value of the assets acquired and liabilities assumed are primarily based on future cash flows and discount rates.The following table summarizes the fair value of assets acquired and liabilities assumed from the merger:


(In Thousands)	March 29, 2019
Assets
Cash and cash equivalents	$	10,822
Loans		130,449
Real estate, held for sale		67,973
Investment in unconsolidated joint ventures		8,619
Other assets
Deferred tax assets		4,660
Accrued interest		1,209
Other		379
Total assets acquired	$	224,111
Liabilities
Secured borrowings		12,713
Accounts payable and other accrued liabilities		1,000
Due to Manager		228
Deferred tax liabilities		123
Total liabilities assumed	$	14,064
Net assets acquired	$	210,047

For acquired loan receivables, the gross contractual unpaid principal acquired is $134.8 million and we expect to collect all contractual amounts.

The aggregate consideration transferred, net assets acquired, and the related bargain purchase gain was as follows:


Total consideration transferred (in thousands, except share and per share data)
FV of net assets acquired	$	210,047

ORM shares outstanding at March 29, 2019		8,482,880
Exchange ratio	x	1.441
Shares issued		12,223,830
Market price as of March 29, 2019	$	14.67
Total consideration transferred based on value of shares issued	$	179,324

Bargain purchase gain	$	30,728

Based on the calculation, the Company has determined the transaction resulted in a bargain purchase gain, which is predominantly the result of changes in the market price of the Company’s common stock between the determination date and the closing date of the transaction. This gain is reflected separately within the unaudited interim consolidated statements of income under gain on bargain purchase.

Acquisition-related costs directly attributable to the ORM Merger, including legal, accounting, valuation, and other professional or consulting fees, totaling $5.5 million for the three months ended March 31, 2019, were expensed as incurred and are reflected separately within the unaudited interim consolidated statements of income.

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Additionally, the Merger Agreement provided for a cash tender offer to existing ZAIS shareholders for cash proceeds up to $64.3 million. The tender offer was completed at a price of $15.37 equal to 95% of ZAIS’s adjusted book value per share, as further adjusted by ZAIS’s pro-rata share of (i) an $8.0 million payment to ZAIS REIT Management, LLC relating to the termination of ZAIS’s existing advisory agreement, and (ii) approximately $4.0 million related to intangible assets. The tender offer resulted in the tender of 4,185,478 shares of ZAIS common stock.

The primary purpose of the merger was to increase the combined company’s scale, which is expected to enhance operational efficiencies, substantially increase the liquidity in the combined company common stock and meaningfully reduce operating costs.

The following pro-forma income and earnings (unaudited) of the combined company are presented for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2019, as if the merger had occurred on January 1, ~~2016:~~2019:


		For the three months ended
(In Thousands)		March 31, 2019
Selected Financial Data
Interest income	$	51,543
Interest expense		(36,323)
Provision for loan losses		(518)
Non-interest income		27,031
Non-interest expense		(37,721)
Income before provision for income taxes		4,012
Income tax benefit (provision)		2,996
Net income	$	7,008

Non-recurring pro-forma transaction costs directly attributable to the merger were $8.4 million for the three months ended March 31, 2019, and have been deducted from the non-interest expense amount above. These costs included legal, accounting, valuation, and other professional or consulting fees directly attributable to the merger. The Company excluded the bargain purchase gain of $30.7 million from the amount above.

Acquisition of Knight Capital

On October 25, 2019, the Company acquired Knight Capital. Knight Capital is a technology-driven platform that provides working capital to small and medium businesses across the U.S. Through its platform, Knight Capital supports business operations by offering a faster alternative to conventional bank funding. The total purchase price for the merger of $27.8 million consists of $17.5 million of cash and $10.3 million of Ready Capital common stock.

The purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values. The following table summarizes the fair value of assets acquired and liabilities assumed from the merger:

For the three months ended

For the nine months ended
(In Thousands)

September 30, 2016

September 30, 2016
Selected Financial Data

Interest income

$
34,945

$
112,712
Interest expense

(17,074)

(50,393)
Provision for loan losses

(488)

(4,689)
Non-interest income (expense)

(8,977)

(29,282)
Realized gain (loss)

2,161

2,767
Unrealized gain (loss)

6,644

(5,559)
Net income from continuing operations before income taxes

$
17,211

$
25,556


(In Thousands)	October 25, 2019
Assets
Cash and cash equivalents	$	1,673
Purchased future receivables,		39,540
Prepaid expenses and other		1,265
Intangible assets		5,880
Total assets acquired	$	48,358
Liabilities
Secured borrowings		30,600
Accounts payable and other accrued liabilities		1,173
Total liabilities assumed	$	31,773
Net assets acquired	$	16,585

The aggregate consideration transferred, net assets acquired, and the related goodwill was as follows:


Total Consideration Transferred (in thousands)
Cash consideration	$	17,500
Common stock consideration		10,290
Total consideration transferred	$	27,790

Net Tangible Assets	$	10,705
Identified Intangible Assets		5,880
FV of Net Assets Acquired	$	16,585

Goodwill	$	11,205

The acquired intangible assets are definite-lived assets consisting of technology, brokers network and trade name. The estimated fair values of the technology and brokers network were determined using the cost replacement method, and the fair value of the trade name was determined using the relief from royalty method. The estimated fair value of the intangible assets were primarily based on cost assumptions such as replacement costs, which management believes are reasonable. The fair value of the intangible assets with definite lives is as follows (dollars in thousands):


(In Thousands)	Fair Value		Weighted Average Amortization Life
Internally developed software	$	3,800	6 years
Broker network		1,200	4.5 years
Trade name		880	6 years
Total Intangible Assets	$	5,880	6 years

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Goodwill of $11.2 million was recognized in connection with the Company’s acquisition of Knight Capital as the consideration paid exceeded the fair value of the net assets acquired.

The following pro-forma income and earnings (unaudited) of the combined company are presented as if the merger had occurred on January 1, 2019:


		For the three months ended
(In Thousands)		March 31, 2019
Selected Financial Data
Interest income	$	48,753
Interest expense		(35,775)
Provision for loan losses		(518)
Non-interest income		71,925
Non-interest expense		(57,600)
Income before provision for income taxes		26,785
Income tax benefit		3,003
Net income	$	29,788

Note 6 – Loans and ~~Allowance~~allowance for ~~Loan Losses~~loan losses

~~Loan accounting framework~~

The accounting for a loan depends on management’s strategy for the loan, and on whether the loan was ~~credit-impaired~~credit-deteriorated at the date of acquisition. The Company accounts for loans based on the following loan program categories:

·

Originated or purchased loans ~~held-for-investment, other than PCI loans –~~held-for-investment– originated transitional loans, originated conventional SBC and SBA loans, ~~that have been securitized,~~ or acquired loans with no signs of credit deterioration at time of purchase.

·

Loans at fair value – certain originated conventional SBC ~~and SBA~~ loans ~~that we intend to securitize~~for which the Company has elected the fair value option

·

Loans, held-for-sale, at fair value – originated or acquired that we intend to sell in the near term

·

~~PCI loans held-for-investment – acquired loans with signs of credit deterioration at time of purchase~~

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Loan ~~Portfolio~~portfolio

The following table summarizes the classification, unpaid principal balance (“UPB”), and carrying value of loans held by the Company including loans of consolidated VIEs:


	September 30, 2017				December 31, 2016				March 31, 2020				December 31, 2019
Loans (In Thousands)	Carrying Value		UPB		Carrying Value		UPB		Carrying Value		UPB		Carrying Value		UPB
Loans
Acquired SBA 7(a) loans	$	354,293	$	378,544	$	440,731	$	471,189	$	239,627	$	250,687	$	255,240	$	269,396
Acquired loans		133,506		152,284		310,286		355,660		439,957		440,314		430,307		433,079
Originated Transitional loans		192,263		191,880		163,155		162,270		799,640		807,732		593,657		600,226
Originated Transitional loans, at fair value		—		—		14,505		13,958
Originated SBC loans, at fair value		158,393		153,017		67,087		65,131		19,813		19,558		20,212		19,565
Originated SBC loans		30,279		29,846		10,426		10,749		207,050		205,146		133,118		132,227
Originated SBA 7(a) loans		32,829		34,742		15,414		16,112		295,873		298,050		297,934		299,580
Originated Residential Agency loans		1,552		1,553		2,238		2,413		4,113		4,113		3,396		3,395
Total Loans, before allowance for loan losses	$	903,115	$	941,866	$	1,023,842	$	1,097,482	$	2,006,073	$	2,025,600	$	1,733,864	$	1,757,468
Allowance for loan losses	$	(10,219)		—	$	(12,721)		—	$	(37,021)		—	$	(5,880)		—
Total Loans, net	$	892,896	$	941,866	$	1,011,121	$	1,097,482	$	1,969,052	$	2,025,600	$	1,727,984	$	1,757,468
Loans in consolidated VIEs
Loans
Originated SBC loans	$	402,432	$	392,234	$	448,722	$	436,220	$	1,008,011	$	998,420	$	1,037,844	$	1,026,921
Acquired loans		204,123		219,769		92,844		101,481		622,213		628,044		666,226		671,698
Originated Transitional loans										461,131		463,039		490,913		493,217
Originated SBA 7(a) loans										75,337		79,520		79,457		83,559
Acquired SBA 7(a) loans		74,616		103,268		91,978		127,963		49,432		61,672		53,320		66,997
Originated Transitional loans		225,700		223,954		25,424		24,486
Total Loans, in consolidated VIEs, before allowance for loan losses	$	906,871	$	939,225	$	658,968	$	690,150	$	2,216,124	$	2,230,695	$	2,327,760	$	2,342,392
Allowance for loan losses on loans in consolidated VIEs	$	(2,505)		—	$	(3,409)		—	$	(20,947)		—	$	(1,561)		—
Total Loans, net, in consolidated VIEs	$	904,366	$	939,225	$	655,559	$	690,150	$	2,195,177	$	2,230,695	$	2,326,199	$	2,342,392
Total Loans, net, and Loans, net in consolidated VIEs	$	1,797,262	$	1,881,091	$	1,666,680	$	1,787,632	$	4,164,229	$	4,256,295	$	4,054,183	$	4,099,860
Held for sale, at fair value, loans
Loans, held for sale, at fair value
Originated Residential Agency loans	$	101,659	$	97,653	$	127,773	$	125,012	$	213,969	$	204,351	$	136,506	$	132,016
Originated Freddie Mac loans		78,875		76,753		17,311		17,162		79,524		78,726		21,775		21,513
Originated SBA 7(a) loans		13,807		13,190		—		—		12,324		11,525		28,551		26,669
Acquired loans		5,977		6,099		36,713		36,734		511		525		1,245		1,208
Total Loans, held for sale, at fair value	$	200,318	$	193,695	$	181,797	$	178,908	$	306,328	$	295,127	$	188,077	$	181,406
Loans, held for sale, at fair value in consolidated VIEs
Loans, held for sale, at fair value
Acquired loans									$	4,017	$	4,011	$	4,434	$	4,400
Total Loans, held for sale, at fair value in consolidated VIEs									$	4,017	$	4,011	$	4,434	$	4,400
Total Loans, held for sale, at fair value, and Loans, held for sale, at fair value in consolidated VIEs									$	310,345	$	299,138	$	192,511	$	185,806
Total Loan portfolio	$	1,997,580	$	2,074,786	$	1,848,477	$	1,966,540	$	4,474,574	$	4,555,433	$	4,246,694	$	4,285,666

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The following table displays delinquency information on loans, net by year of origination:


			Carrying Value by Year of Origination
(In Thousands)	UPB		2020		2019		2018		2017		2016		Pre 2016		Total
March 31, 2020
Loans(1) (2)
Current and less than 30 days past due	$	4,086,485	$	275,042	$	1,351,822	$	805,023	$	290,520	$	89,149	$	1,243,278	$	4,054,834
30-89 Days Past Due		95,211		179		4,202		6,149		9,704		18,536		53,566		92,336
90+ Days		74,599		—		3,691		7,099		8,034		17,407		27,264		63,495
Total Loans, before general allowance for loans losses	$	4,256,295	$	275,221	$	1,359,715	$	818,271	$	308,258	$	125,092	$	1,324,108	$	4,210,665
General allowance for loan losses															$	(46,436)
Total Loans, net															$	4,164,229

(1) Loan balances include specific allowance for loan losses of $11.5 million.

(2) Includes Loans, net in consolidated VIEs

The following tables display delinquency information on loans, net as of ~~September 30, 2017 and December 31, 2016:~~the unaudited interim consolidated balance sheet dates:


	September 30, 2017												March 31, 2020
Loans (In Thousands)	Current and less than 30 days past due		30-89 Days Past Due		90+ Days Past Due		Total Loans Carrying Value		Non-Accrual Loans		90+ Days Past Due but Accruing		Current and less than 30 days past due		30-89 Days Past Due		90+ Days Past Due		Total Loans Carrying Value		Non-Accrual Loans		90+ Days Past Due but Accruing
Loans(1)(2)
Originated Transitional loans													$	1,228,782	$	22,089	$	9,890	$	1,260,761	$	9,890	$	—
Originated SBC loans														1,184,204		11,045		17,568		1,212,817		17,568		—
Acquired loans														999,330		40,759		21,562		1,061,651		24,375		608
Acquired SBA 7(a) loans	$	409,053	$	10,622	$	5,877	$	425,552	$	18,976	$	—		267,249		11,606		5,223		284,078		9,527		1,315
Acquired loans		271,849		29,376		29,514		330,739		24,525		6,642
Originated Transitional loans		417,963		—		—		417,963		—		—
Originated SBC loans, at fair value		158,393		—		—		158,393		—		—		14,317		—		5,496		19,813		—		5,496
Originated SBC loans		431,005		—		1,704		432,709		1,704		—
Originated SBA 7(a) loans		32,791		—		11		32,802		427		—		359,411		6,257		1,761		367,429		6,484		—
Originated Residential Agency loans		896		—		656		1,552		656		—		1,541		580		1,995		4,116		2,575		—
Total Loans, before general allowance for loans losses	$	1,721,950	$	39,998	$	37,762	$	1,799,710	$	46,288	$	6,642	$	4,054,834	$	92,336	$	63,495	$	4,210,665	$	70,419	$	7,419
General allowance for loan losses							$	(2,448)											$	(46,436)
Total Loans, net							$	1,797,262	$	46,288	$	6,642							$	4,164,229
Percentage of outstandings		95.7%		2.2%		2.1%		100%		2.6%		0.4%
(1) Loan balances include specific allowance for loan losses.
Percentage of outstanding														96.3%		2.2%		1.5%		100%		1.7%		0.2%
(1) Loan balances include specific allowance for loan losses of $11.5 million.													(1) Loan balances include specific allowance for loan losses of $11.5 million.
(2) Includes Loans, net in consolidated VIEs	(2) Includes Loans, net in consolidated VIEs												(2) Includes Loans, net in consolidated VIEs

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The following tables presents quantitative information on the credit quality of loans, net as of ~~September 30, 2017 and December 31, 2016:~~the unaudited interim consolidated balance sheet dates:


		Loan-to-Value (a)															Loan-to-Value (a)
(In Thousands)		0.0 – 20.0%		20.1 – 40.0%		40.1 – 60.0%		60.1 – 80.0%		80.1 – 100.0%		Greater than 100.0%		Total			0.0 – 20.0%		20.1 – 40.0%		40.1 – 60.0%		60.1 – 80.0%		80.1 – 100.0%		Greater than 100.0%		Total
September 30, 2017
March 31, 2020
Loans(1) (2)
Originated Transitional loans																	$	5,564	$	34,044	$	246,284	$	869,073	$	105,043	$	753	$	1,260,761
Originated SBC loans																		—		63,255		472,162		650,758		18,886		7,756		1,212,817
Acquired loans																		223,696		401,626		242,357		130,586		47,238		16,148		1,061,651
Acquired SBA 7(a) loans		$	9,243	$	41,208	$	130,248	$	116,684		60,720	$	67,449	$	425,552			7,750		38,603		99,308		78,322		29,623		30,472		284,078
Acquired loans			51,041		81,451		100,840		54,317		24,906		18,184		330,739
Originated Transitional loans			—		38,073		170,268		189,063		14,234		6,325		417,963
Originated SBC loans, at fair value			—		17,364		20,034		104,196		16,799		—		158,393			—		8,006		—		6,311		5,496		—		19,813
Originated SBC loans			2,673		56,347		185,800		180,146		7,743		—		432,709
Originated SBA 7(a) loans			268		515		4,754		11,709		5,775		9,781		32,802			1,169		14,730		46,168		139,658		61,067		104,637		367,429
Originated Residential Agency loans			—		60		95		422		972		3		1,552			—		51		91		1,030		2,668		276		4,116
Total Loans, before general allowance for loans losses		$	63,225	$	235,018	$	612,039	$	656,537	$	131,149	$	101,742	$	1,799,710		$	238,179	$	560,315	$	1,106,370	$	1,875,738	$	270,021	$	160,042	$	4,210,665
General allowance for loan losses														$	(2,448)														$	(46,436)
Total Loans, net														$	1,797,262														$	4,164,229
December 31, 2016
Percentage of outstanding																		5.7	%	13.3	%	26.3	%	44.5	%	6.4	%	3.8	%
December 31, 2019
Loans(1) (2)
Originated Transitional loans																	$	1,736	$	28,108	$	277,388	$	750,298	$	28,059	$	739	$	1,086,328
Originated SBC loans																		—		60,601		431,312		660,733		8,045		8,208		1,168,899
Acquired loans																		218,679		371,471		293,216		161,431		35,731		13,755		1,094,283
Acquired SBA 7(a) loans		$	9,301	$	42,617	$	153,710	$	141,586		86,085	$	94,657	$	527,956			7,712		39,566		103,590		83,954		39,726		32,312		306,860
Acquired loans			46,776		90,574		109,330		106,432		20,335		20,382		393,829
Originated Transitional loans, at fair value			—		—		1,475		13,030		—		—		14,505
Originated Transitional loans			—		17,187		78,219		44,730		32,967		15,476		188,579
Originated SBC loans, at fair value			—		11,303		5,728		34,150		15,906		—		67,087			—		8,192		—		6,422		5,598		—		20,212
Originated SBC loans			2,709		56,050		187,823		190,473		20,258		1,770		459,083
Originated SBA 7(a) loans			145		375		2,995		3,351		2,456		6,092		15,414			865		13,843		41,166		130,177		78,544		112,034		376,629
Originated Residential Agency loans			—		—		217		434		1,399		188		2,238			—		51		—		830		2,393		122		3,396
Total Loans, before allowance for loans losses		$	58,931	$	218,106	$	539,497	$	534,186	$	179,406	$	138,565	$	1,668,691		$	228,992	$	521,832	$	1,146,672	$	1,793,845	$	198,096	$	167,170	$	4,056,607
General allowance for loan losses														$	(2,011)														$	(2,424)
Total Loans, net														$	1,666,680														$	4,054,183
Percentage of outstanding																		5.6	%	12.9	%	28.3	%	44.2	%	4.9	%	4.1	%
(a) Loan-to-value is calculated as carrying amount as a percentage of current collateral value	(a) Loan-to-value is calculated as carrying amount as a percentage of current collateral value															(a) Loan-to-value is calculated as carrying amount as a percentage of current collateral value
(1) Loan balances include specific allowance for loan loss reserves.	(1) Loan balances include specific allowance for loan loss reserves.															(1) Loan balances include specific allowance for loan loss reserves.
(2) Includes Loans, net in consolidated VIEs	(2) Includes Loans, net in consolidated VIEs															(2) Includes Loans, net in consolidated VIEs

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The following table displays the collateral type concentration of the Company’s SBA loans within loans, net, on our unaudited interim consolidated balance sheets.


Collateral Concentration (Unpaid Principal Balance)	September 30, 2017		December 31, 2016
Collateral Concentration (% of Unpaid Principal Balance)					March 31, 2020		December 31, 2019
Lodging					19.4	%	17.3	%
Offices of Physicians	16.1	%	15.8	%	13.9		14.1
Child Day Care Services	12.4		14.3		7.6		8.1
Lodging	11.1		11.4
Eating Places					6.3		6.1
Veterinarians	7.2		6.7		3.9		4.1
Eating Places	5.3		6.3
Gasoline Service Stations					3.8		3.7
Funeral Service & Crematories					2.1		2.0
Grocery Stores	4.6		4.3		2.1		2.0
Auto	3.3		3.2		1.2		1.3
Accounting Auditing & Bookkeeping	2.1		2.4
Funeral Service & Crematories	2.0		1.7
Gasoline Service Stations	1.8		1.8
Other	34.1		32.1		39.7		41.3
Total	100.0	%	100.0	%	100.0	%	100.0	%

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The following table summarizes the recorded investment of TDRs onin the unaudited interim consolidated balance sheet ~~dates~~ by loan ~~type.~~type as of the unaudited interim consolidated balance sheet dates.


	September 30, 2017						December 31, 2016						March 31, 2020						December 31, 2019
(In Thousands)	SBC		SBA		Total		SBC		SBA		Total		SBC		SBA		Total		SBC		SBA		Total
Recorded carrying value modified loans classified as TDRs	$	3,462	$	10,374	$	13,836	$	7,918	$	11,135	$	19,053	$	2,161	$	13,221	$	15,382	$	6,258	$	14,204	$	20,462
Allowance for loan losses on loans classified as TDRs	$	829	$	715	$	1,544	$	656	$	1,544	$	2,200	$	15	$	3,825	$	3,840	$	274	$	454	$	728

Carrying value of modified loans classified as TDRs
Carrying value of modified loans classified as TDRs on accrual status	$	1,856	$	3,343	$	5,199	$	5,196	$	359	$	5,555	$	247	$	6,813	$	7,060	$	333	$	7,437	$	7,770
Carrying value of modified loans classified as TDRs on non-accrual status		1,606		7,031		8,637		2,722		10,776		13,498		1,914		6,408		8,322		5,925		6,767		12,692
Total carrying value of modified loans classified as TDRs	$	3,462	$	10,374	$	13,836	$	7,918	$	11,135	$	19,053	$	2,161	$	13,221	$	15,382	$	6,258	$	14,204	$	20,462

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Level 1 — Quoted prices (unadjusted) in active markets for identical assets and liabilities that the Company has the ability to access.

Level 2 — Pricing inputs are other than quoted prices in active markets, including, but not limited to, quoted prices for similar assets and liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market corroborated inputs.

Level 3 — Significant unobservable inputs are based on the best information available in the circumstances, to the extent observable inputs are not available, including the Company’s own assumptions used in determining the fair value of investments. Fair value for these investments are determined using valuation methodologies that consider a range of

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~~The following table presents a summary of changes in the fair value of loans, held at fair value, classified as Level 3:~~


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31, 2019
(In Thousands)	2017		2016		2017		2016		MBS		Derivatives		Loans, held at fair value		Residential MSRs, at fair value		Contingent consideration
Beginning Balance	$	161,890	$	212,920	$	81,592	$	155,134	$	12,148	$	1,776	$	22,664	$	93,065	$	1,207
Purchases or Originations										—		—		—		—		—
Additions due to loans sold, servicing retained										—		—		—		3,593		—
Sales / Principal payments										(102)		—		(29)		(1,312)		—
Realized gains (losses), net		(1)		9		(7)		7		(20)		—		(1)		—		—
Unrealized gains (losses), net		2,307		1,040		4,485		2,989		89		707		(39)		(7,128)		—
Originations		36,243		24,932		119,856		88,272
Sales		—		(4,800)		(3,352)		(1,434)
Principal payments		(1,141)		(20)		(3,276)		—
Transfer to loans, held for sale, at fair value		—		(463)		—		(11,350)
Transfer to loans, held-for-investment		(40,905)		—		(40,905)		—
Accreted discount, net										2		—		—		—		—
Amortization and adjustment for earn-out payments										—		—		—		—		(1,207)
Transfer to (from) Level 3										15,083		—		—		—		—
Ending Balance	$	158,393	$	233,618	$	158,393	$	233,618	$	27,200	$	2,483	$	22,595	$	88,218	$	—

Unrealized gains (losses), net on assets or liabilities held at the end of the period									$	2,501	$	2,483	$	300	$	1,502	$	—

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The following table summarizes the valuation techniques and significant unobservable inputs used for the Company’s financial instruments that are categorized within Level 3 of the fair value hierarchy as of ~~September 30, 2017~~March 31, 2020 using third party information without adjustment:

Predominant

Weighted

Predominant

Weighted

Valuation

Average Price

Valuation

Average Price

(In Thousands, except price)

Fair Value

Technique

Type

Price Range

(a)

Fair Value

Technique

Type

Price Range

(a)

Loans, held at fair value

$

158,393

Single External Source

Third Party Mark

$

100.00 – 104.00

$

103.51

$

19,813

Single External Source

Third Party Mark

$

99.77 – 105.70

$

101.31

Loans, held for sale, at fair value

92,687

Single External Source

Third Party Mark

100.00 – 108.72

103.05

Mortgage backed securities, at fair value (b)

41,245

Broker Quotes

Third Party Mark

29.89 – 103.60

70.01

Mortgage backed securities, at fair value

126

Transaction Price

99.00 – 99.00

99.00

103

Transaction Price

99.00 – 99.00

99.00

Residential mortgage servicing rights, at fair value

68,815

Single external source

Discounted cash flow

N/A

78,631

Single external source

Discounted cash flow

N/A

Contingent consideration

9,037

Single external source

Option pricing model

N/A

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Table of Contents

Accounts payable and other accrued liabilities totaling ~~$8.5~~$26.4 million at ~~September 30, 2017~~March 31, 2020 and ~~$8.4~~$20.0 million at December 31, ~~2016~~2019 are not carried at fair value and include Payable to related parties and Accrued interest payable which are included in Note ~~20.~~19. For these instruments, carrying value approximates fair value and are classified as Level 3.

Note 8 – Mortgage ~~Backed Securities~~backed securities

The following table presents certain information about the Company’s MBS portfolio, which are classified as trading securities and carried at fair value, as of ~~September 30, 2017.~~March 31, 2020 and December 31, 2019.

September 30, 2017




Weighted










Weighted

Average

Gross

Gross

Average

Interest

Principal

Amortized

Unrealized

Unrealized
(In Thousands)

Maturity (a)

Rate (a)

Balance

Cost

Fair Value

Gains

Losses
MBS

Freddie Mac Loans

12/2036

3.6
%
$
42,035

$
29,916

$
30,039

$
1,428

$
(1,305)
Commercial Loans

11/2031

8.2

15,106

10,306

11,206

899

—
Tax Liens

09/2026

6.0

127

127

126

—

—
Total

4.8
%
$
57,268

$
40,349

$
41,371

$
2,327

$
(1,305)

~~(a)~~

~~Weighted based on current principal balance~~

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Ending net carrying value of SBA and Freddie Mac multi-family servicing rights, at amortized cost	$	31,480	$	27,434
Residential mortgage servicing rights, at fair value
Beginning Balance	$	91,174	$	93,065
Additions due to loans sold, servicing retained		7,147		3,593
Loan pay-offs		(3,253)		(1,312)
Unrealized losses		(16,437)		(7,128)
Ending fair value of residential mortgage servicing rights	$	78,631	$	88,218
Total servicing rights	$	110,111	$	115,652

Servicing rights – SBA and Freddie Mac

The Company’s SBA and Freddie Mac multi-family servicing rights are carried at the lower of cost or amortized cost. The Company estimates the fair value of the SBA and Freddie Mac multi-family servicing rights carried at amortized cost using a combination of internal models and data provided by third-party valuation experts. The assumptions used in our internal models include ~~the speed at which the mortgages prepay, cost of~~forward prepayment rates, forward default rates, discount rates, and servicing ~~discount rate and probability of default.~~expenses.

The Company’s models calculate the present value of expected future cash flows utilizing assumptions that we believe are used by market participants. We derive forward prepayment ~~speeds,~~rates, forward default ~~assumptions~~rates and discount ~~rate~~rates from historical experience adjusted for prevailing market conditions. Components of the estimated future cash flows include servicing fees, late fees, other ancillary fees and cost of servicing.

The following table presents additional information about the Company’s SBA and Freddie Mac multi-family servicing rights:


	As of September 30, 2017				As of December 31, 2016				As of March 31, 2020				As of December 31, 2019
	Unpaid Principal				Unpaid Principal				Unpaid Principal				Unpaid Principal
(In Thousands)	Amount		Carrying Value		Amount		Carrying Value		Amount		Carrying Value		Amount		Carrying Value
SBA	$	424,881	$	17,448	$	449,115	$	20,275	$	583,614	$	17,536	$	568,017	$	17,660
Freddie Mac		439,681		3,109		224,826		2,203
Freddie Mac multi-family										1,193,274		13,944		1,167,476		13,135
Total	$	864,562	$	20,557	$	673,941	$	22,478	$	1,776,888	$	31,480	$	1,735,493	$	30,795

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The following table reflects the possible impact of 10% and 20% adverse changes to key assumptions on the carrying amount of the Company’s SBA and Freddie Mac multi-family servicing rights.


(In Thousands)	September 30, 2017		December 31, 2016			March 31, 2020		December 31, 2019
SBA servicing rights (at amortized cost)
• Forward prepayment rate
10% adverse change	$	(547)	$	(664)		$	(558)	$	(563)
20% adverse change		(1,062)		(1,290)			(1,086)		(1,097)

• Default rate
10% adverse change	$	(20)	$	(12)		$	(97)	$	(94)
20% adverse change		(39)		(24)			(193)		(186)

• Discount rate
10% adverse change	$	(529)	$	(576)		$	(529)	$	(520)
20% adverse change		(1,024)		(1,290)			(1,027)		(1,011)

Freddie Mac commercial servicing rights (at amortized cost)
Freddie Mac multi-family servicing rights (at amortized cost)					Freddie Mac multi-family servicing rights (at amortized cost)
• Forward prepayment rate
10% adverse change	$	(119)	$	(55)		$	(287)	$	(285)
20% adverse change		(231)		(107)			(568)		(558)

• Default rate
10% adverse change	$	(4)	$	(2)		$	(1)	$	(5)
20% adverse change		(9)		(4)			(4)		(10)

• Discount rate
10% adverse change	$	(116)	$	(54)		$	(381)	$	(381)
20% adverse change		(223)		(104)			(752)		(746)

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Table of Contents

The following table reflects the possible impact of 10% and 20% adverse changes to key assumptions on the fair value of the Company’s residential mortgage servicing ~~rights.~~rights:


(In Thousands)	September 30, 2017		December 31, 2016		March 31, 2020		December 31, 2019
Prepayment rate
10% adverse change	$	(2,412)	$	(2,038)	$	(4,245)	$	(4,195)
20% adverse change		(4,679)		(3,983)		(8,110)		(8,091)
Discount rate
10% adverse change	$	(2,871)	$	(2,299)	$	(2,849)	$	(3,450)
20% adverse change		(5,520)		(4,438)		(5,501)		(6,654)
Cost of servicing
10% adverse change	$	(1,193)	$	(1,304)	$	(1,562)	$	(1,648)
20% adverse change		(2,387)		(2,607)		(3,123)		(3,297)

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Table of Contents

Note 11 – Secured ~~Short-Term Borrowings and Promissory Note~~borrowings

The following tables present certain characteristics of our secured ~~short-term borrowings and promissory note:~~borrowings:

Pledged Assets
Carrying Value at

Carrying Value
of Borrowing at
(in 000s)
Maturity

Pricing

Facility
Size

September 30,
2017

December 31,
2016

September 30,
2017

December 31,
2016
Borrowings under credit facilities

JPMorgan - Commercial (1)
June 2018

L+ 3.25 to 3.50%

$
250,000

$
43,407

$
226,253

$
30,960

$
190,066
Keybank - Commercial (2)
September 2018

L + 1.75%

100,000

78,872

17,311

76,753

17,162
Comerica - Residential (3)
March 2018

L + 2.125%

150,000

65,460

35,102

61,332

33,575
UBS - Residential loans (3)
November 2017

L + 2.30%

65,000

—

43,121

—

39,750
Associated Bank - Residential loans (3)
August 2018

L + 2.25%

40,000

15,446

28,575

14,345

27,869
Origin Bank - Residential loans (3)
May 2018

L + 2.25%

40,000

20,191

18,910

19,006

18,188
Total borrowings under credit facilities (9)

$
645,000

$
223,376

$
369,272

$
202,396

$
326,610
Borrowings under repurchase agreements

Deutsche Bank- Commercial (4)
February 2018

L + 2.50 to 3.50%

$
275,000

$
119,707

$
118,962

$
76,954

$
82,716
JPMorgan - Commercial (5)
December 2017

L + 2.50 to 4.50%

250,000

77,343

93,691

44,883

52,169
Citibank - Commercial (6)
June 2018

L + 2.25% to 3.00%

200,000

59,911

119,376

49,778

102,576
JPMorgan - MBS (7)
November 2017

2.56 to 3.94%

36,331

54,518

42,253

36,331

30,363
Citibank - MBS (7)
November 2017

3.37%

5,957

11,496

11,496

5,957

5,226
Bank of America - MBS (7)
January 2018

3.38 - 3.48%

8,112

9,630

11,815

6,568

8,112
Mizuho - STI (8)
N/A

N/A

99,950

—

100,000

—

99,950
Societe Generale - STI (8)
N/A

N/A

19,940

—

19,994

—

19,940
RBC - STI (8)
October 2017

1.50%

199,800

99,994

199,990

99,900

199,800
Total borrowings under repurchase agreements (10)

$
1,095,090

$
432,599

$
717,577

$
320,371

$
600,852
Total secured short-term borrowings

$
1,740,090

$
655,975

$
1,086,849

$
522,767

$
927,462

Promissory note payable

FCB - Commercial
June 2021

2.75%

$
9,164

$
8,233

$
9,144

$
6,494

$
7,378
Total promissory note payable

$
9,164

$
8,233

$
9,144

$
6,494

$
7,378


									Carrying Value at
Lender	Asset Class	Current Maturity	Pricing	Facility Size			Pledged Assets Carrying Value		March 31, 2020		December 31, 2019
JPMorgan	Acquired loans, SBA loans	August 2020	1M L + 2.00 to 2.50%	$	250,000		$	104,668	$	82,204	$	88,972
Keybank	Freddie Mac loans	February 2021	1M L + 1.30%		100,000			79,524		78,726		21,513
East West Bank	SBA loans	July 2020	Prime - 0.821 to + 0.29%		50,000			39,285		30,911		13,294
Credit Suisse	Acquired loans (non USD)	December 2021	Euribor + 2.50%		224,500	(a)		51,274		37,030		37,646
FCB	Acquired loans	June 2021	2.75%		1,218			1,737		1,218		1,354
Comerica Bank	Residential loans	March 2021	1M L + 1.75%		100,000			82,991		77,926		56,822
TBK Bank	Residential loans	July 2020	Variable Pricing		150,000			78,585		76,358		52,151
Origin Bank	Residential loans	May 2020	Variable Pricing		50,000			17,885		16,143		15,343
Associated Bank	Residential loans	November 2020	1M L + 1.50%		40,000			36,697		34,228		5,823
East West Bank	Residential MSRs	September 2023	1M L + 2.50%		50,000			53,044		49,200		39,900
Credit Suisse	Purchased future receivables	June 2021	1M L + 4.50%		50,000			49,150		43,250		34,900
Rabobank	Real estate	January 2021	4.22%		14,500			18,953		12,386		12,485
Total borrowings under credit facilities (b)				$	1,080,218		$	613,793	$	539,580	$	380,203
Citibank	Fixed rate, Transitional, Acquired loans	August 2020	1M L + 1.875 to 2.125%	$	500,000		$	305,046	$	246,417	$	124,718
Deutsche Bank	Fixed rate, Transitional loans	November 2021	3M L + 2.00 to 2.40%		425,000			472,064		331,181		141,356
JPMorgan	Transitional loans	December 2020	1M L + 2.25 to 4.00%		400,000			423,990		297,342		250,466
JPMorgan	MBS	September 2020	2.87 to 4.52%		90,507			122,070		90,507		93,715
Deutsche Bank	MBS	January 2021	3.14 to 3.81%		47,612			52,173		47,612		44,730
Citibank	MBS	April 2020	2.89 to 4.01%		55,275			76,566		55,275		56,189
Bank of America	MBS	April 2020	1.31 to 1.61%		34,886			33,968		34,886		38,954
RBC	MBS	August 2020	3.03 to 3.71%		56,137			63,200		56,137		59,061
Total borrowings under repurchase agreements (c)				$	1,609,417		$	1,549,077	$	1,159,357	$	809,189
Total secured borrowings				$	2,689,635		$	2,162,870	$	1,698,937	$	1,189,392

~~(1)~~

~~Borrowings are used to finance SBC and SBA loan acquisitions, and SBA loan originations.~~

~~(2)~~

~~Borrowings are used to finance Freddie Mac SBC loan originations.~~

~~(3)~~

~~Borrowings are used to finance Residential Agency loan originations.~~

~~(4)~~

~~Borrowings are used to finance SBC loan originations.~~

~~(5)~~

~~Borrowings are used to finance SBC loan originations, Transitional loan originations, and SBC loan acquisitions.~~

~~(6)~~

~~Borrowings are used to finance SBC loan originations and SBC loan acquisitions.~~

~~(7)~~

~~Borrowings are used to finance Mortgage backed securities and Retained interests in consolidated VIE's.~~

~~(8)~~

~~Borrowings are used to finance Short-term investments.~~

~~(9)~~

~~The weighted average interest rate of borrowings under credit facilities was 2.9% and 4.2% as of September 30, 2017 and December 31, 2016, respectively.~~

~~(10)~~

~~The weighted average interest rate of borrowings under repurchase agreements was 2.4% and 1.8% as of September 30, 2017 and December 31, 2016, respectively.~~

(a) The current facility size is €200.0 million, but has been converted into USD for purposes of this disclosure.

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~~In accordance with ASU 2013-01,~~ ~~Balance Sheet (Topic 210): Clarifying the Scope~~Note 12 – Senior secured notes, convertible notes, and corporate debt, net

Senior secured notes, net

During 2017, ReadyCap Holdings LLC, a subsidiary of ~~Disclosures about Offsetting Assets and Liabilities~~, the Company, ~~is required~~issued $140.0 million in 7.50% Senior Secured Notes due 2022. On January 30, 2018 ReadyCap Holdings LLC, issued an additional $40.0 million in aggregate principal amount of 7.50% Senior Secured Notes due 2022, which have identical terms (other than issue date and issue price) to ~~disclose~~ the ~~impact~~notes issued during 2017 (collectively “the Senior Secured Notes”). The additional $40.0 million in Senior Secured Notes were priced with a yield to par call date of ~~offsetting of assets and liabilities represented in the unaudited interim consolidated balance sheets to enable users~~6.5%. Payments of the ~~unaudited interim consolidated financial statements to evaluate~~amounts due on the ~~effect or potential effect of netting arrangements on its financial position for recognized assets~~Senior Secured Notes are fully and liabilities. These recognized assets and liabilities are financial instruments and derivative instruments that are either subject to enforceable master netting arrangements or ISDA Master Agreements or meet the following right of setoff criteria: (a) the amounts owedunconditionally guaranteed by the Company and its subsidiaries: Sutherland Partners LP, Sutherland Asset I, LLC, and ReadyCap Commercial, LLC. The funds were used to ~~another party are determinable, (b)~~fund new SBC and SBA loan originations and new SBC loan acquisitions.

As of March 31, 2020, we were in compliance with all covenants with respect to the Senior Secured Notes.

Convertible notes, net

On August 9, 2017, the Company ~~has~~closed an underwritten public sale of $115.0 million aggregate principal amount of its 7.00% convertible senior notes due 2023 (“Convertible Notes”). The Convertible Notes will mature on August 15, 2023, unless earlier repurchased, redeemed or converted. During certain periods and subject to certain conditions, the Convertible Notes will be convertible by holders into shares of the Company's common stock at an initial conversion rate of 1.4997 shares of common stock per $25 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $16.67 per share of common stock. Upon conversion, holders will receive, at the Company's discretion, cash, shares of the Company's common stock or a combination thereof.

The Company may redeem all or any portion of the Convertible Notes, at its option, on or after August 15, 2021, at a redemption price payable in cash equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest. Additionally, upon the occurrence of certain corporate transactions, holders may require the Company to purchase the Convertible Notes for cash at a purchase price equal to 100% of the principal amount of the Convertible Notes to be purchased, plus accrued and unpaid interest.

The Convertible Notes will be convertible only upon satisfaction of one or more of the following conditions: (1) the closing market price of the Company’s common stock is greater than or equal to 120% of the conversion price of the respective Convertible Notes for at least 20 out of 30 days prior to the end of the preceding fiscal quarter, (2) the trading price of the Convertible Notes is less than 98% of the product of (i) the conversion rate and (ii) the closing price of the Company’s common stock during any five consecutive trading day period, (3) the Company issues certain equity instruments at less than the 10-day average closing market price of its common stock or the per-share value of certain distributions exceeds the market price of the Company’s common stock by more than 10%, or (4) certain other specified corporate events (significant consolidation, sale, merger share exchange, etc.) occur.

At issuance, we allocated $112.7 million and $2.3 million of the carrying value of the Convertible Notes to its debt and equity components, respectively, before the allocation of deferred financing costs. As of March 31, 2020, we were in compliance with all covenants with respect to the Convertible Notes.

Corporate debt, net

On April 27, 2018, the Company completed the public offer and sale of $50,000,000 aggregate principal amount of its 6.50% Senior Notes due 2021 ( the “2021 Notes”). The Company issued the 2021 Notes under a base indenture, dated August 9, 2017, as supplemented by the second supplemental indenture, dated as of April 27, 2018, between the Company and U.S. Bank National Association, as trustee. The 2021 Notes bear interest at a rate of 6.50% per annum, payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year, beginning on July 30, 2018. The 2021 Notes will mature on April 30, 2021, unless earlier redeemed or repurchased.

The Company may redeem for cash all or any portion of the 2021 Notes, at its option, on or after April 30, 2019 and before April 30, 2020 at a redemption price equal to 101% of the principal amount of the 2021 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. On or after April 30, 2020, the Company may redeem for cash all or any portion of the 2021 Notes, at its option, at a redemption price equal to 100% of the principal amount of

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Table of Contents

the 2021 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company undergoes a change of control repurchase event, holders may require it to purchase the 2021 Notes, in whole or in part, for cash at a repurchase price equal to 101% of the aggregate principal amount of the 2021 Notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase, as described in greater detail in the Indenture.

The 2021 Notes are the Company’s senior direct unsecured obligations and will not be guaranteed by any of its subsidiaries, except to the extent described in the Indenture upon the occurrence of certain events. The 2021 Notes rank equal in right of payment to ~~set off~~any of the ~~amounts owed~~Company’s existing and future unsecured and unsubordinated indebtedness; effectively junior in right of payment to any of its existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness, other liabilities (including trade payables) and (to the extent not held by the Company) preferred stock, if any, of its subsidiaries.

On July 22, 2019, the Company completed the public offer and sale of $57.5 million aggregate principal amount of its 6.20% Senior Notes due 2026 (the “2026 Notes” and together with the ~~amounts owed~~2021 Notes, the “Corporate Debt”), which includes $7.5 million aggregate principal amount of the 2026 Notes relating to the full exercise of the underwriters’ over-allotment option. The net proceeds from the sale of the 2026 Notes are approximately $55.3 million, after deducting underwriters’ discount and estimated offering expenses. The Company will contribute the net proceeds to Sutherland Partners, L.P. (the “Operating Partnership”), its operating partnership subsidiary, in exchange for the issuance by the ~~counterparty, (c)~~Operating Partnership of a senior unsecured note with terms that are substantially equivalent to the terms of the 2026 Notes. The Operating Partnership intends to use the net proceeds to originate or acquire the Company’s target assets and for general business purposes.

The 2026 Notes bear interest at a rate of 6.20% per annum, payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year, beginning on October 30, 2019. The 2026 Notes will mature on July 30, 2026, unless earlier repurchased or redeemed.

The Company may redeem for cash all or any portion of the 2026 Notes, at its option, on or after July 30, 2022 and before July 30, 2025 at a redemption price equal to 101% of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. On or after July 30, 2025, the Company ~~intends~~may redeem for cash all or any portion of the 2026 Notes, at its option, at a redemption price equal to ~~set off,~~100% of the principal amount of the 2026 Notes to be redeemed, plus accrued and ~~(d)~~unpaid interest to, but excluding, the redemption date. If the Company undergoes a change of control repurchase event, holders may require it to purchase the 2026 Notes, in whole or in part, for cash at a repurchase price equal to 101% of the aggregate principal amount of the 2026 Notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase, as described in greater detail in the Indenture.

The 2026 Notes are the Company’s senior unsecured obligations and will not be guaranteed by any of its subsidiaries, except to the extent described in the Indenture upon the occurrence of certain events. The 2026 Notes rank equal in right of ~~setoff is enforceable at law.~~ payment to any of the Company’s existing and future unsecured and unsubordinated indebtedness; effectively junior in right of payment to any of its existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness, other liabilities (including trade payables) and (to the extent not held by the Company) preferred stock, if any, of its subsidiaries.

On December 2, 2019, the Company completed the public offer and sale of $45.0 million aggregate principal amount of the 2026 Notes. The new notes have the same terms (expect with respect to issue date, issue price and the date from which interest will accrue) as, are fully fungible with and are treated as a single series of debt securities as, the 6.20% Senior Notes due 2026 the Company issued on July 22, 2019.

As of ~~September 30, 2017 and December~~March 31, ~~2016,~~2020, we were in compliance with all covenants with respect to the ~~Company has elected to offset assets and liabilities associated with its OTC derivative contracts in the unaudited interim consolidated balances sheets.~~ corporate debt.

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Table of Contents

The following table ~~provides disclosure regarding~~presents the ~~effect of offsetting~~components of the ~~Company’s recognized assets~~Senior Secured Notes, Convertible Notes, and ~~liabilities presented~~Corporate Debt, including the carrying value for the aggregate contractual maturities, in the ~~unaudited interim~~ consolidated balance ~~sheet as of September 30, 2017:~~sheet:

Gross

Assets

Amounts

Presented in

Gross Amounts Not Offset in the Consolidated

Gross

Offset in the

the

Balance Sheets (1)

Amounts of

Consolidated

Consolidated

Cash

Recognized

Balance

Balance

Financial

Collateral

(In Thousands)

Assets

Sheets

Sheets

Instruments

Received

Net Amount
Interest rate swaps

$
1,562

$
—

$
1,562

$
—

$
1,562

$
—
Total

$
1,562

$
—

$
1,562

$
—

$
1,562

$
—


(in thousands, except rates)	Coupon Rate		Maturity Date	March 31, 2020
Senior secured notes principal amount(1)	7.50	%	2/15/2022	$	180,000
Unamortized premium - Senior secured notes					1,479
Unamortized deferred financing costs - Senior secured notes					(2,092)
Total Senior secured notes, net				$	179,387
Convertible notes - principal amount (2)	7.00	%	8/15/2023		115,000
Unamortized discount - Convertible notes (3)					(1,352)
Unamortized deferred financing costs - Convertible notes					(2,338)
Total Convertible notes, net				$	111,310
Corporate debt principal amount(4)	6.50	%	4/30/2021	$	50,000
Corporate debt principal amount(5)	6.20	%	7/30/2026		104,250
Unamortized discount - Corporate debt					420
Unamortized deferred financing costs - Corporate debt					(4,596)
Total Corporate debt, net				$	150,074
Total carrying amount of debt components				$	440,771
Total carrying amount of conversion option of equity components recorded in equity				$	1,352

Gross

Liabilities

Amounts

Presented in

Gross Amounts Not Offset in the Consolidated

Gross

Offset in the

the

Balance Sheets (1)

Amounts of

Consolidated

Consolidated

Cash

Recognized

Balance

Balance

Financial

Collateral

(In Thousands)

Liabilities

Sheets

Sheets

Instruments

Paid

Net Amount
Interest rate swaps

$
303

$
—

$
303

$
—

$
303

$
—
Credit default swaps

55

—

55

—

55

—
Secured short-term borrowings

522,767

—

522,767

522,767

—

—
Promissory note, net

6,494

—

6,494

6,494

—

—
Total

$
529,619

$
—

$
529,619

$
529,261

$
358

$
—

(1)

~~Amounts presented in these columns are limited in total to~~Interest on the ~~net amount~~Senior Secured Notes is payable semiannually on each February 15 and August 15, beginning on August 15, 2017.

(2)

Interest on the Convertible Notes is payable quarterly on February 15, May 15, August 15, and November 15 of ~~assets or liabilities presented in~~each year, beginning on November 15, 2017.

(3)

Represents the ~~prior column~~discount created by ~~instrument. In certain cases, there is excess cash collateral or financial assets we have pledged to a counterparty that exceed~~separating the financial liabilities subject to a master netting repurchase arrangement or similar agreement. Additionally, in certain cases, counterparties may have pledged excess cash collateral to us that exceeds our corresponding financial assets. In each case, any of these excess amounts are excludedconversion option from the ~~table although they are separately reported in our unaudited interim consolidated balance sheets as assets or liabilities, respectively.~~debt host instrument.

(4)

Interest on the corporate debt is payable January 30, April 30, July 30, and October 30 of each year, beginning on July 30, 2018.

(5)

Interest on the corporate debt is payable January 30, April 30, July 30, and October 30 of each year, beginning on October 30, 2019.

The following table presents the contractual maturities of the Senior Secured Notes, Convertible Notes, and Corporate debt:


(In Thousands)	March 31, 2020
2020	$	—
2021		50,000
2022		180,000
2023		115,000
2024		—
Thereafter		104,250
Total contractual amounts		449,250
Unamortized deferred financing costs, discounts, and premiums, net		(8,479)
Total carrying amount of debt components	$	440,771

Note 13 – Guaranteed loan financing

Participations or other partial loan sales which do not meet the definition of a participating interest remain as an investment in the unaudited interim consolidated balance sheets and the portion sold is recorded as guaranteed loan financing in the liabilities section of the unaudited interim consolidated balance sheets. For these partial loan sales, the interest earned on the entire loan balance is recorded as interest income and the interest earned by the buyer in the partial loan sale is recorded within interest expense in the accompanying unaudited interim consolidated statements of income.

The following table presents guaranteed loan financing and the related interest rates and maturity dates:


	Weighted		Range of
	Average		Interest	Range of
(In Thousands)	Interest Rate		Rates	Maturities (Years)	Ending Balance
March 31, 2020	5.21	%	1.70 - 6.50 %	2020 - 2044	$	457,032
December 31, 2019	5.45	%	1.70 - 7.50 %	2020 - 2044	$	485,461

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Table of Contents

The following table ~~provides disclosure regarding the effect~~summarizes contractual maturities of ~~offsetting~~total guaranteed loan financing outstanding:


(In Thousands)	March 31, 2020
2020	$	314
2021		1,326
2022		2,369
2023		3,329
2024		4,614
Thereafter		445,080
Total	$	457,032

Our guaranteed loan financings are secured by loans, net of ~~the Company’s recognized assets~~$458.6 million and ~~liabilities presented in the unaudited interim consolidated balance sheet~~$487.2 million as of March 31, 2020 and December 31, ~~2016:~~2019, respectively.

Gross

Assets

Amounts

Presented in

Gross Amounts Not Offset in the Consolidated

Gross

Offset in the

the

Balance Sheets (1)

Amounts of

Consolidated

Consolidated

Cash

Recognized

Balance

Balance

Financial

Collateral

(In Thousands)

Assets

Sheets

Sheets

Instruments

Received

Net Amount
Credit default swaps

$
173

$
—

$
173

$
—

$
—

$
173
Interest rate swaps

2,924

2

2,922

—

—

2,922
Total

$
3,097

$
2

$
3,095

$
—

$
—

$
3,095

Liabilities

Gross

Presented in

Gross Amounts Not Offset in the Consolidated

Gross

Amounts

the

Balance Sheets (1)

Amounts of

Offset in the

Consolidated

Cash

Recognized

Consolidated

Balance

Financial

Collateral

(In Thousands)

Liabilities

Balance Sheets

Sheets

Instruments

Paid

Net Amount
Interest rate swaps

$
643

$
—

$
643

$
—

$
643

$
—
Secured short-term borrowings

927,462

—

927,462

925,602

1,860

—
Promissory note, net

7,378

—

7,378

7,378

—

—
Total

$
935,483

$
—

$
935,483

$
932,980

$
2,503

$
—

~~(1)~~

Amounts presented in these columns are limited in total to the net amount of assets or liabilities presented in the prior column by instrument. In certain cases, there is excess cash collateral or financial assets we have pledged to a counterparty that exceed the financial liabilities subject to a master netting repurchase arrangement or similar agreement. Additionally, in certain cases, counterparties may have pledged excess cash collateral to us that exceeds our corresponding financial assets. In each case, any of these excess amounts are excluded from the table although they are separately reported in our unaudited interim consolidated balance sheets as assets or liabilities, respectively.

Note 1314 – ~~Derivative Instruments~~Variable interest entities and securitization activities

In the normal course of business, we enter into certain types of transactions with entities that are considered to be VIEs. Our primary involvement with VIEs has been related to our securitization transactions in which we transfer assets to securitization trusts. We primarily securitize our acquired and originated loans, which provides a source of funding for us and has enabled us to transfer a certain portion of the economic risk of the loans or related debt securities to third parties.

We also transfer originated loans to securitization trusts sponsored by third parties, most notably Freddie Mac. Third-party securitizations are securitization entities in which we maintain an economic interest, but do not sponsor.

The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and is required to consolidate the VIE. The majority of the VIEs in which we have been involved in are consolidated within our financial statements. See Note 3 for a discussion of our accounting policies applied to the consolidation of the VIE and transfer of the loans in connection with the securitization.

Securitization-related VIEs

Company ~~is exposed~~sponsored securitizations

In a securitization transaction, assets are transferred to ~~changing interest rates and market conditions,~~a trust, which ~~affects cash flows associated with borrowings. The Company uses derivative instruments to manage interest rate risk and conditions~~generally meets the definition of a VIE. Our primary securitization activity is in the ~~commercial mortgage market~~form of SBC and SBA loan securitizations, conducted through securitization trusts which we consolidate, as ~~such, views them~~we determined that we are the primary beneficiary.

For financial statement reporting purposes, since the underlying trust is consolidated, the securitization is effectively viewed as ~~economic hedges. Interest rate swaps are used to mitigate the exposure to changes in interest rates and involve the receipt of variable-rate interest amounts from~~ a ~~counterparty in exchange for making payments based on a fixed interest rate over the life~~financing of the ~~swap contract. CDS are executed in order~~loans that were securitized to ~~mitigate~~enable the ~~risk of deterioration~~senior security to be created and sold to a third-party investor. As such, the senior security is presented in the ~~current credit health~~consolidated balance sheets as securitized debt obligations of consolidated VIEs. The third-party beneficial interest holders in the ~~commercial mortgage market. IRLCs~~VIE have no recourse against the Company, except that the Company has an obligation to repurchase assets from the VIE in the event that certain representations and warranties in relation to the loans sold to the VIE are ~~entered into with customers who have applied for residential mortgage loans and meet certain underwriting criteria. These commitments expose GMFS~~breached. In the absence of such a breach, the Company has no obligation to ~~market risk if interest rates change, and if the loan is not economically hedged~~provide any other explicit or ~~committed~~implicit support to ~~an investor.~~any VIE.

The ~~Company has not elected hedge accounting for these derivative~~securitization trust receives principal and interest on the underlying loans and distributes those payments to the certificate holders. The assets and other instruments held by the securitization trust are restricted in that they can only be used to fulfill the obligations of the securitization trust. The risks associated with the Company’s involvement with the VIE is limited to the risks and rights as a certificate holder of the securities retained by the Company.

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The consolidation of the securitization transactions includes the senior securities issued to third parties which are shown as securitized debt obligations of consolidated VIEs in the unaudited interim consolidated balance sheets. The following table presents additional information on the Company’s securitized debt obligations:


	March 31, 2020						December 31, 2019
	Current				Weighted		Current				Weighted
	Principal		Carrying		Average		Principal		Carrying		Average
(In Thousands)	Balance		value		Interest Rate		Balance		value		Interest Rate
Waterfall Victoria Mortgage Trust 2011-SBC2	$	6,131	$	6,131	5.5	%	$	6,399	$	6,399	5.5	%
ReadyCap Lending Small Business Trust 2019-2		117,876		117,876	4.3			131,032		129,007	4.3
Sutherland Commercial Mortgage Trust 2017-SBC6		38,679		37,958	3.5			42,309		41,486	3.4
Sutherland Commercial Mortgage Trust 2018-SBC7		114,938		113,166	4.7			138,235		136,212	4.7
Sutherland Commercial Mortgage Trust 2019-SBC8		210,516		207,679	2.9			219,617		216,981	2.9
ReadyCap Commercial Mortgage Trust 2014-1		18,406		18,411	5.8			18,626		18,632	5.6
ReadyCap Commercial Mortgage Trust 2015-2		60,344		57,772	4.5			64,239		61,443	4.5
ReadyCap Commercial Mortgage Trust 2016-3		27,295		25,927	3.6			32,269		30,777	4.7
ReadyCap Commercial Mortgage Trust 2018-4		114,670		111,058	3.9			121,179		117,428	3.9
ReadyCap Commercial Mortgage Trust 2019-5		282,994		273,342	4.1			309,296		299,273	4.1
ReadyCap Commercial Mortgage Trust 2019-6		378,765		371,539	3.2			379,400		371,939	3.2
Ready Capital Mortgage Financing 2018-FL2		80,042		79,202	3.3			115,381		114,057	3.8
Ready Capital Mortgage Financing 2019-FL3		267,904		264,837	3.0			267,904		264,249	3.5
Total (1)	$	1,718,560	$	1,684,898	3.6	%	$	1,845,886	$	1,807,883	3.7	%

(1) Excludes non-company sponsored securitized debt obligations of $7.2 million and $7.3 million that are consolidated in the unaudited interim consolidated balance sheets as of March 31, 2020 and December 31, 2019, respectively.

Repayment of our securitized debt will be dependent upon the cash flows generated by the loans in the securitization trust that collateralize such debt. The actual cash flows from the securitized loans are comprised of coupon interest, scheduled principal payments, prepayments and liquidations of the underlying loans. The actual term of the securitized debt may differ significantly from our estimate given that actual interest collections, mortgage prepayments and/or losses on liquidation of mortgages may differ significantly from those expected.

Third-party sponsored securitizations

For third-party sponsored securitizations, we determined that we are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact the economic performance of these entities. Specifically, we do not manage these entities or otherwise solely hold decision making powers that are significant, which include special servicing decisions. As a result of this assessment, we do not consolidate any of the ~~fair value adjustments~~underlying assets and liabilities of these trusts, we only account for our specific interests in them.

Other VIEs

Other VIEs include a variable interest that we hold in an acquired joint venture investment that we account for as an equity method investment. We do not consolidate these entities because we do not have the power to direct the activities that most significantly impact their economic performance, we only account for our specific interest in them.

Assets and liabilities of consolidated VIEs

The following table reflects the securitized assets and liabilities for VIEs that we consolidate on ~~such instruments~~our consolidated balance sheets:


(In Thousands)	March 31, 2020		December 31, 2019
Assets:
Cash and cash equivalents	$	20	$	23
Restricted cash		8,538		8,301
Loans, net		2,195,177		2,326,199
Loans, held for sale, at fair value		4,017		4,434
Due from servicers		10,279		27,964
Accrued interest		11,486		11,565
Total assets	$	2,229,517	$	2,378,486
Liabilities:
Securitized debt obligations of consolidated VIEs, net		1,692,074		1,815,154
Total liabilities	$	1,692,074	$	1,815,154

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Assets of unconsolidated VIEs

The following table reflects our variable interests in identified VIEs, of which we are not the primary beneficiary, as of March 31, 2020 and December 31, 2019:


	Carrying Amount				Maximum Exposure to Loss (1)
(In Thousands)	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Assets:
Mortgage backed securities, at fair value(2)	$	55,685	$	66,108	$	55,685	$	66,108
Investment in unconsolidated joint ventures		53,379		58,850		53,379		58,850
Total assets in unconsolidated VIEs	$	109,064	$	124,958	$	109,064	$	124,958
(1) Maximum exposure to loss is limited to the greater of the fair value or carrying value of the assets as of the consolidated balance sheet date.
(2) Retained interest in Freddie Mac sponsored securitizations.

Note 15 – Interest income and interest expense

Interest income and interest expense are recorded in earnings. The fair value adjustments for interest rate swaps and CDS, along with the related interest income, interest expense and gains/(losses) on termination of such instruments, are reported as a net realized gain on financial instruments on the unaudited interim consolidated statements of ~~income. The fair value adjustments for IRLCs, along with the related interest~~ income ~~interest expense~~ and ~~gains/(losses) on termination of such instruments, are reported in gains on residential mortgage banking activities, net of variable loan expenses~~classified based on the ~~unaudited interim consolidated statements of income.~~

The following tables summarize the Company’s use of derivatives and their effect on the unaudited interim consolidated financial statements. Notional amounts included in the table are the average notional amounts on the unaudited interim consolidated balance sheet dates. We believe these are the most relevant measure of volume or derivative activity as they best represent the Company’s exposure to underlying instruments.

~~As of September 30, 2017 and December 31, 2016 the Company had one open credit default swap contract and 50 open interest rate swap contracts with counterparties.~~

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interest income, interest expense and gains (losses) on termination of such instruments, are reported as a net realized gain on financial instruments in the unaudited interim consolidated statements of income. The fair value adjustments for IRLCs, along with the related interest income, interest expense and gains (losses) on termination of such instruments, are reported in residential mortgage banking activities on the unaudited interim consolidated statements of income.

~~Commitments to originate loans do not necessarily reflect future~~As described in Note 3, for qualifying cash ~~requirements as some commitments~~flow hedges, the entire change in the fair value of the derivative is recorded in OCI and recognized in the consolidated statements of income when the hedged cash flows affect earnings. Derivative amounts affecting earnings are ~~expected to expire without being drawn upon. As~~recognized consistent with the classification of ~~September 30, 2017 and December 31, 2016, total commitments to originate loans were $193.4 million and $200.0 million, respectively.~~

~~Note 19 – Income Taxes~~the hedged item, primarily interest expense. The ineffective portions of the cash flow hedges are immediately recognized in earnings.

The ~~Company is a REIT pursuant to IRC Section 856. Our qualification as a REIT depends on our ability to meet various requirements imposed by~~following tables summarize the ~~Internal Revenue Code, which relate to our organizational structure, diversity~~Company’s use of ~~stock ownership~~derivatives and ~~certain requirements with regard to~~their effect in the nature of our assets and the sources of our income. As a REIT, we generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments and excluding any net capital gain, in order for U.S. federal income tax not to apply to our earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. Even if we qualify as a REIT, we may be subject to certain U.S. federal income and excise taxes and state and local taxes on our income and assets. If we fail to maintain our qualification as a REIT for any taxable year, we may be subject to material penalties as well as federal, state and local income tax on our taxable income at regular corporate rates and we would not be able to qualify as a REIT for the subsequent four taxable years. As of September 30, 2017 and December 31, 2016, we were in compliance with all REIT requirements.

Certain of our subsidiaries have elected to be taxed as a taxable REIT subsidiary (“TRS”). A TRS may provide certain services considered impermissible for REITs and may hold assets that REITs may not hold directly. The accompanying unaudited interim consolidated financial ~~statements include an~~statements. Notional amounts included in the table are the average notional amounts on the unaudited interim ~~tax provision for our TRS’ for~~consolidated balance sheet dates. We believe these are the ~~three and nine months ended September 30, 2017 and 2016, respectively.~~most relevant measure of volume or derivative activity as they best represent the Company’s exposure to underlying instruments.

~~During~~The following table summarizes our derivatives, by type, as of March 31, 2020 and December 31, 2019:


		As of March 31, 2020						As of December 31, 2019
				Asset		Liability				Asset		Liability
		Notional		Derivatives		Derivatives		Notional		Derivatives		Derivatives
(In Thousands)	Primary Underlying Risk	Amount		Fair Value		Fair Value		Amount		Fair Value		Fair Value
Interest rate lock commitments	Interest rate risk	$	660,770		17,261	$	—	$	238,283	$	2,814	$	—
Interest Rate Swaps - not designated as hedges	Interest rate risk		623,543		—		(9,882)		291,001		—		(3,181)
Interest Rate Swaps - designated as hedges	Interest rate risk		143,215		—		(6,703)		158,325		—		(1,709)
Credit Default Swaps	Credit risk		15,000		260		—		15,000		—		(110)
FX forwards	Foreign exchange rate risk		16,908		235				15,000		—		(250)
Total		$	1,459,436	$	17,756	$	(16,585)	$	717,609	$	2,814	$	(5,250)

The following tables summarize the ~~three months ended September 30, 2017~~gains and ~~2016, we recorded an income tax benefit of $0.3 million~~losses on the Company’s derivatives:


	Three Months Ended March 31, 2020				Three Months Ended March 31, 2019
	Net Realized		Unrealized		Net Realized		Unrealized
(In Thousands)	Gain (Loss)		Gain (Loss)		Gain (Loss)		Gain (Loss)
Credit default swaps (1)	$	—	$	370	$	—	$	(323)
Interest rate swaps (1)(2)		(247)		(9,988)		(796)		604
Residential mortgage banking activities interest rate swaps (3)		—		(10,180)		—		(343)
Interest rate lock commitments (3)		—		14,487		—		708
FX forwards (1)		(137)		485		—		—
Total	$	(384)	$	(4,826)	$	(796)	$	646
(1) Gains (losses) are recorded in net unrealized gain (loss) on financial instruments or net realized gain (loss) on financial instruments in the consolidated statements of income. (2) For qualifying hedges of interest rate risk, the effective portion relating to the unrealized gain (loss) on derivatives are recorded in accumulated other comprehensive income (loss). (3) Gains (losses) are recorded in residential mortgage banking activities in the consolidated statements of income.

The following tables summarize the gains and ~~an income tax expense $1.3 million, respectively. During~~losses on the ~~nine months ended September 30, 2017 and 2016, we recorded an income tax expense of $1.8 million and $3.3 million, respectively. The income tax expense~~Company’s derivatives which have qualified for the above periods primarily related to activities of our taxable REIT subsidiaries and various state and local taxes. During the three months ended September 30, 2017, the Company executed an internal restructuring involving ReadyCap Holdings, LLC and SAMC REO 2013-01, LLC. As a result of the restructuring, Management concluded that SAMC REO’s deferred tax assets are more likely than not to be realized in the future and released $2.9 million of valuation allowance. There were no material changes to uncertain tax positions during the quarter.hedge accounting:


(In Thousands)	Derivatives - effective portion reclassified from AOCI to income		Hedge ineffectiveness recorded directly in income (2)		Total income statement impact		Derivatives- effective portion recorded in OCI (3)		Total change in OCI for period (3)
Hedge type
Interest rate - forecasted transactions (1)	$	(367)	$	(1,694)	$	(2,061)	$	(5,189)	$	(3,128)
Total - Three Months Ended March 31, 2020	$	(367)	$	(1,694)	$	(2,061)	$	(5,189)	$	(3,128)
Hedge type
Interest rate - forecasted transactions (1)	$	41	$	—	$	41	$	(461)	$	(420)
Total - Three Months Ended March 31, 2019	$	41	$	—	$	41	$	(461)	$	(420)
(1) Consists of benchmark interest rate hedges of LIBOR-indexed floating-rate liabilities.
(2) Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the cumulative expected change in cash flows on the hedged item attributable to the hedged risk.
(3) Represents after tax amounts recorded in OCI.

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Note 17 – Real estate, held for sale

The following table summarizes the carrying amount of the Company’s real estate holdings as of the unaudited interim consolidated balance sheet dates:


(In Thousands)	March 31, 2020		December 31, 2019
Acquired ORM Portfolio:
Retail	$	18,953	$	19,950
Mixed Use		16,604		17,478
Land		7,362		7,919
Lodging/Residential		3,230		6,280
Office		981		1,256
Total Acquired ORM REO	$	47,130	$	52,883
Other REO held for sale:
Office	$	151		4,465
SBA		351		286
Mixed Use		—		279
Retail		660		660
Total Other REO	$	1,162	$	5,690

Total Real estate, held for sale	$	48,292	$	58,573

Note 18 – Agreements and transactions with related parties

Management Agreement

The Company has entered into a management agreement with our Manager (the “Management Agreement”), which describes the services to be provided to us by our Manager and compensation for such services. Our Manager is responsible for managing the Company’s day-to-day operations, subject to the direction and oversight of the Company’s board of directors.

Management fee

Pursuant to the terms of the Management Agreement, our Manager is paid a management fee calculated and payable quarterly in arrears equal to 1.5% per annum of the Company’s stockholders’ equity (as defined in the Management Agreement) up to $500 million and 1.00% per annum of stockholders’ equity in excess of $500 million.

The following table presents certain information on the management fee payable to our Manager:


	For the Three Months Ended March 31,
	2020		2019
Management fee - total	$	2.6 million	$	2.0 million
Management fee - amount unpaid	$	2.6 million	$	4.1 million

Incentive distribution

Our Manager is entitled to an incentive distribution in an amount equal to the product of (i) 15% and (ii) the excess of (a) core earnings (as defined in the partnership agreement or the operating partnership) on a rolling four-quarter basis over (b) an amount equal to 8.00% per annum multiplied by the weighted average of the issue price per share of the common stock or OP units multiplied by the weighted average number of shares of common stock outstanding, provided that core earnings over the prior twelve calendar quarters (or the period since the closing of the ZAIS Merger, whichever is shorter) is greater than zero. For purposes of determining the incentive distribution payable to our Manager, core earnings is defined under the partnership agreement of the operating partnership in a manner that is similar to the definition of Core Earnings described below under Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Non-GAAP Financial Measures” included in this quarterly report on Form 10-Q but with the following additional adjustments which (i) further exclude: (a) the incentive distribution, (b) non-cash equity compensation expense, if any, (c) unrealized gains or losses on SBC loans (not just MBS and MSRs), (d) depreciation and amortization (to the extent we foreclose on any property), and (e) one-time events pursuant to changes in U.S. GAAP and certain other non-cash charges after discussions between our Manager and our independent directors and after approval by a majority of the independent directors and (ii) add back any realized gains or losses on the sales of MBS and on discontinued operations which were excluded from the definition of core earnings described under "Non-GAAP Financial Measures".

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The following table presents certain information on the incentive fee payable to our Manager:


	For the Three Months Ended March 31,
	2020		2019
Incentive fee distribution - total	$	-	$	-
Incentive fee distribution - amount unpaid	$	-	$	0.2 million

The Management Agreement may be terminated upon the affirmative vote of at least two-thirds of our independent directors or the holders of a majority of the outstanding common stock (excluding shares held by employees and affiliates of the Manager), based upon (1) unsatisfactory performance by our Manager that is materially detrimental to the Company or (2) a determination that the management fee payable to our Manager is not fair, subject to our Manager’s right to prevent such a termination based on unfair fees by accepting a mutually acceptable reduction of management fees agreed to by at least two-thirds of our independent directors. The Manager must be provided with written notice of any such termination at least 180 days prior to the expiration of the then existing term. Additionally, upon such a termination by the Company without cause (or upon termination by the Manager due to the Company’s material breach), the management agreement provides that the Company will pay the Manager a termination fee equal to three times the average annual base management fee earned by our Manager during the prior 24-month period immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination, except upon an internalization. Additionally, if the management agreement is terminated under circumstances in which the Company is obligated to make a termination payment to the Manager, the operating partnership shall repurchase, concurrently with such termination, the Class A special unit for an amount equal to three times the average annual amount of the incentive distribution paid or payable in respect of the Class A special unit during the 24-month period immediately preceding such termination, calculated as of the end of the most recently completed fiscal quarter before the date of termination.

The current term of the Management Agreement will expire on October 31, 2020 and is automatically renewed for successive one-year terms on each anniversary thereafter; provided, however, that either the Company, under the certain limited circumstances described above that would require the Company and the operating partnership to make the payments described above, or the Manager may terminate the Management Agreement annually upon 180 days prior notice.

Expense reimbursement

In addition to the management fees and incentive distribution described above, the Company is also responsible for reimbursing our Manager for certain expenses paid by our Manager on behalf of the Company and for certain services provided by our Manager to the Company.Expenses incurred by our Manager and reimbursed by us are typically included in salaries and benefits or general and administrative expense in the unaudited interim consolidated statements of income.

The following table presents certain information on reimbursable expenses payable to our Manager:


	For the Three Months Ended March 31,
	2020		2019
Reimbursable expenses payable to our Manager - total	$	1.3 million	$	0.8 million
Reimbursable expenses payable to our Manager - amount unpaid	$	0.2 million	$	1.0 million

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Note 19 – Other assets and other liabilities

The following table details the Company’s other assets and other liabilities as of the unaudited interim consolidated balance sheet dates.


(In Thousands)	March 31, 2020		December 31, 2019
Other assets:
Deferred tax asset	$	31,803	$	31,803
Tax receivable		14,184		4,019
Deferred loan exit fees		14,374		13,039
Accrued interest		11,383		10,583
Goodwill		11,206		11,206
Due from servicers		4,641		10,127
Right-of-use lease asset		4,586		4,531
Intangible assets		7,978		8,309
Deferred financing costs		2,440		2,046
Other assets		12,296		11,262
Total other assets	$	114,891	$	106,925
Accounts payable and other accrued liabilities:
Deferred tax liability	$	18,757	$	18,757
Accrued salaries, wages and commissions		12,871		21,146
Accrued interest payable		23,836		17,305
Servicing principal and interest payable		6,661		14,145
Repair and denial reserve		5,043		5,179
Payable to related parties		2,561		2,697
Accrued professional fees		2,525		1,809
Lease payable		4,673		4,618
Other liabilities		12,813		11,751
Total accounts payable and other accrued liabilities	$	89,740	$	97,407

Intangible assets

The following table presents information about the intangible assets held by the Company:


(In Thousands)	March 31, 2020		December 31, 2019		Estimated Useful Life
Internally developed software - Knight Capital	$	3,536	$	3,694	6 years
Broker network - Knight Capital		1,089		1,156	4.5 years
SBA license		1,000		1,000	Indefinite life
Favorable lease		871		905	12 years
Trade name - Knight Capital		819		855	6 years
Trade name - GMFS		663		699	15 years
Total Intangible Assets	$	7,978	$	8,309

Amortization expense related to the intangible assets previously acquired for the three months ended March 31, 2020 and 2019 was $0.3 million and $0.1 million, respectively. Such amounts are recorded as other operating expenses in the consolidated statements of income.

At March 31, 2020, accumulated amortization for finite-lived intangible assets is as follows:


(In Thousands)	March 31, 2020
Favorable lease	$	609
Trade name - GMFS		559
Internally developed software - Knight Capital		264
Broker network - Knight Capital		111
Trade name - Knight Capital		61
Total Accumulated Amortization	$	1,604

Amortization expense related to the finite-lived intangible assets for the five years subsequent to March 31, 2020 is as follows:


(In Thousands)	March 31, 2020
2020	$	992
2021		1,295
2022		1,268
2023		1,242
2024		1,210
Thereafter		971
Total	$	6,978

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Loan indemnification reserve

A liability has been established for potential losses related to representations and warranties made by GMFS for loans sold with a corresponding provision recorded for loan indemnification losses. The liability is included in accounts payable and other accrued liabilities in the Company's unaudited interim consolidated balance sheets and the provision for loan indemnification losses is included in variable expenses on residential mortgage banking activities, in the Company's unaudited interim consolidated statements of income. In assessing the adequacy of the liability, management evaluates various factors including historical repurchases and indemnifications, historical loss experience, known delinquent and other problem loans, outstanding repurchase demand, historical rescission rates and economic trends and conditions in the industry. Actual losses incurred are reflected as a reduction of the reserve liability. At March 31, 2020 and December 31, 2019, the loan indemnification reserve was $2.3 million and $2.1 million, respectively.

Because of the uncertainty in the various estimates underlying the loan indemnification reserve, there is a range of losses in excess of the recorded loan indemnification reserve that is reasonably possible. The estimate of the range of possible losses for representations and warranties does not represent a probable loss, and is based on current available information, significant judgment, and a number of assumptions that are subject to change. At March 31, 2020 and December 31, 2019, the reasonably possible loss above the recorded loan indemnification reserve was not considered material.

Note 20 – Other income and operating expenses

The following table details the Company’s other income and operating expenses for the unaudited interim consolidated statements of income.


	Three Months Ended March 31,
(In Thousands)	2020		2019
Other income
Origination income	$	2,495		808
Change in repair and denial reserve		136		(89)
Other		1,442		181
Total other income	$	4,073	$	900
Other operating expenses
Origination costs		3,025		1,189
Technology expense		1,580		1,101
Impairment on real estate		2,969		305
Rent and property tax expense		1,184		691
Recruiting, training and travel expense		624		587
Marketing expense		546		545
Loan acquisition costs		98		110
Financing costs on purchased future receivables		624		—
Other		3,094		2,333
Total other operating expenses	$	13,744	$	6,861

~~Note 20 – Other Asset and Other Liabilities~~

~~The following table details~~Note 21 – Stockholders’ Equity

Equity offering

In December 2019, we completed a public offering of 6,000,000 shares of our common stock at a public offering price of $15.30 per share and an additional 900,000 shares of common stock at a public offering price of $15.30 per share pursuant to the ~~Company’s other assets and other liabilities as~~underwriter’s full exercise of the ~~unaudited interim consolidated balance sheet dates.~~

(In Thousands)

September 30, 2017

December 31, 2016
Other assets:

Due from servicers

6,053

27,029
Intangible assets

3,357

3,636
Accrued interest

5,284

5,606
Real estate acquired in settlement of loans

4,217

3,933
Deferred financing costs

2,487

3,376
Fixed assets

1,329

1,572
Prepaid taxes

4,646

1,456
Deferred tax asset

1,371

1,371
Prepaid technology expense

519

918
Prepaid insurance expense

135

899
Other

5,958

4,481
Total other assets

$
35,356

$
54,277
Accounts payable and other accrued liabilities:

Accrued salaries, wages and commissions

$
13,722

$
17,450
Servicing principal and interest payable

7,196

10,664
Repair and denial reserve

6,524

6,813
Liability under subservicing agreements

2,158

6,757
Unapplied cash

5,421

6,278
Accrued interest payable

6,548

4,680
Payable to related parties

2,034

3,762
Accrued professional fees

997

2,880
Loan indemnification reserve

2,813

2,780
Accrued tax liability

3,667

1,996
Liability under participation agreements

1,115

1,735
Deferred tax liability

632

632
Accounts payable on liability under participation agreements

50

982
Cash held as collateral

—

80
Other

1,702

2,718
Total accounts payable and other accrued liabilities

$
54,579

$
70,207

~~Real Estate Acquired~~over-allotment option in ~~Settlement~~January 2020. Proceeds, net of ~~Loans~~offering costs and expenses were $91.8 million and $13.8 million for December 2019 and January 2020, respectively. There were no equity offerings during 2018.

The Company acquires real estate through the foreclosure of its loans and the occasional purchase of real estate. The Company’s real estate properties are held in the Company’s consolidated Taxable REIT Subsidiaries (“TRS”), SAMC REO 2013-01, LLC, ReadyCap Lending, LLC, and other asset specific TRSs. The following tables summarize the carrying amount of the Company’s real estate holdings as of the unaudited interim consolidated balance sheet dates:

(In Thousands)

September 30, 2017

December 31, 2016
North Carolina

1,850

1,850
Florida

1,023

1,320
Illinois

873

19
Texas

108

108
Other

363

636
Total

$
4,217

$
3,933

The table above includes real estate acquired in settlement of loans for which the Company has recorded cumulative valuation adjustments of $7.7 million and $6.9 million at September 30, 2017 and December 31, 2016, respectively. These assets have been marked to third-party broker price opinions less an estimate of costs to sell.

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~~Loan indemnification reserve~~

Common stock dividends

~~A liability has been established~~The following table presents cash dividends declared by our board of directors on our common stock from December 12, 2018 through March 31, 2020:


			Dividend per
Declaration Date	Record Date	Payment Date	Share
December 12, 2018	December 31, 2018	January 31, 2019	$	0.40
March 12, 2019	March 28, 2019	April 30, 2019	$	0.40
June 11, 2019	June 28, 2019	July 31, 2019	$	0.40
September 10, 2019	September 30, 2019	October 31, 2019	$	0.40
December 11, 2019	December 31, 2019	January 31, 2020	$	0.40
March 11, 2020	March 31, 2020	April 30, 2020	$	0.40	(1)

(1) Dividends paid in a combination of cash, not to exceed 20% in the aggregate, and common stock.

Stock incentive plan

The Company currently maintains the 2012 equity incentive plan (“the 2012 Plan”). The 2012 Plan authorizes the Compensation Committee to approve grants of equity-based awards to our officers, directors, and employees of our Manager and its affiliates. The equity incentive plan provides for ~~potential losses~~grants of equity-based awards up to an aggregate of 5% of the shares of the Company’s common stock issued and outstanding from time to time on a fully diluted basis.

The Company’s current policy for issuing shares upon settlement of stock-based incentive awards is to issue new shares. The fair value of the RSUs and RSAs granted, which is determined based upon the stock price on the grant date, is recorded as compensation expense on a straight-line basis over the vesting periods for the awards, with an offsetting increase in stockholders’ equity.

The following table summarizes the Company’s RSA activity for the three months ended March 31, 2020:


	Restricted Stock Awards
(In Thousands, except share data)	Number of Shares	Grant date fair value		Weighted-average grant date fair value (per share)
Outstanding, January 1	1,009,617	$	15,722	$	15.57
Granted	208,514		3,298		15.82
Vested	(60,370)		(894)		14.81
Forfeited	—		—		—
Outstanding, March 31, 2020	1,157,761	$	18,126	$	15.66

During the three months ended March 31, 2020, the Company recognized $0.9 million of noncash compensation expense related to ~~representations and warranties made by GMFS for loans sold with a corresponding provision recorded for loan indemnification losses. The liability is included~~its stock-based incentive plan in accounts payable and other accrued liabilities in the Company's unaudited interim consolidated balance sheets and the provision for loan indemnification losses is included in gains on residential mortgage banking activities, net of variable loan expenses, in the Company'sour unaudited interim consolidated statements of income. ~~In assessing~~During the ~~adequacy~~three months ended March 31, 2019, the Company recognized $0.7 million of noncash compensation.

At March 31, 2020 and 2019, approximately $18.1 million and $2.7 million of noncash compensation expense related to unvested awards had not yet been charged to net income, respectively. These costs are expected to be amortized into compensation expense ratably over the course of the liability, management evaluates various factors including historical repurchases and indemnifications, historical loss experience, known delinquent and other problem loans, outstanding repurchase demand, historical rescission rates and economic trends and conditions in the industry. Actual losses incurred are reflected as a reductionremainder of the ~~reserve liability. At September 30, 2017 and December 31, 2016, the loan indemnification reserve was $2.8 million.~~ respective vesting periods.

Because of the uncertainty in the various estimates underlying the loan indemnification reserve, there is a range of losses in excess of the recorded loan indemnification reserve that is reasonably possible. The estimate of the range of possible losses for representations and warranties does not represent a probable loss, and is based on current available information, significant judgment, and a number of assumptions that are subject to change. At September 30, 2017 and December 31, 2016, the reasonably possible loss above the recorded loan indemnification reserve was not considered material.

~~Note 21 – Other Income and Other Operating Expenses~~

~~The following table details the Company’s other income and operating expenses for the unaudited interim consolidated statements of income.~~

Three Months Ended September 30,

Nine Months Ended September 30,
(In Thousands)

2017

2016

2017

2016
Other income

Origination income

1,163

1,601

3,184

3,139
Release/(Increase) of repair and denial reserve

277

(343)

289

1,222
Other

413

471

808

974
Total other income

$
1,853

$
1,729

$
4,281

$
5,335
Other operating expenses

Origination costs

2,167

916

4,636

2,804
Technology expense

964

732

2,736

2,096
Charge off of real estate acquired in settlement of loans

644

278

746

912
Rent expense

554

317

1,676

931
Recruiting, training and travel expenses

539

273

1,718

954
Acquisition costs

282

71

600

500
Depreciation

125

—

390

—
Marketing expense

401

49

1,168

278
Insurance expense

247

109

733

367
Other

1,524

628

4,780

2,343
Total other operating expenses

$
7,447

$
3,373

$
19,183

$
11,185

~~Note 22 – Variable Interest Entities and Securitization Activities~~

Special purpose entities, or “SPEs”, are entities (in the form of trusts) designed to fulfill a specific limited need of the entity that organizes it. SPEs are often used to facilitate transactions that involve securitizing financial assets. The objective of such transactions may include obtaining non-recourse financing, obtaining liquidity or refinancing the underlying securitized financial assets on more favorable terms than available on such assets on an un-securitized basis. Securitization involves transferring assets to an SPE to convert all or a portion of those assets into cash before they would have been realized in the normal course of business, through the SPE’s issuance of debt or equity instruments. Investors in an SPE usually have recourse only to the assets in the SPE and, depending on the overall structure of the transaction, may benefit from various forms of credit enhancement, such as over-collateralization in the form of excess assets in the SPE, priority with respect to receipt of cash flows relative to holders of other debt or equity instruments issued by the SPE, or a line of

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~~Securitized debt~~

~~The consolidation~~Note 22 – Earnings per Share of the securitization transactions includes the senior securities issued to third parties which are shown as securitized debt obligations of consolidated VIEs on the unaudited interim consolidated balance sheets. The following table presents additional information on the Company’s securitized debt obligations:

September 30, 2017

December 31, 2016


Current



Weighted


Current



Weighted

Principal

Carrying

Average

Principal

Carrying

Average

(In Thousands)

Balance

value

Interest Rate

Balance

value

Interest Rate

Waterfall Victoria Mortgage Trust 2011-SBC2

$
16,461

$
16,461

5.3
%

$
24,472

$
24,472

5.2
%
Sutherland Commercial Mortgage Loans 2015-SBC4

11,419

10,919

4.0

39,464

38,402

3.9

Sutherland Commercial Mortgage Trust 2017-SBC6

133,370

131,891

3.3

—

—

—

ReadyCap Commercial Mortgage Trust 2014-1

50,059

50,032

3.5

84,320

83,885

3.4

ReadyCap Commercial Mortgage Trust 2015-2

159,347

154,526

4.1

166,232

160,699

4.0

ReadyCap Commercial Mortgage Trust 2016-3

105,329

102,272

3.5

133,774

129,914

3.5

Ready Capital Mortgage Financing 2017-FL1

187,862

183,142

2.6

—

—

—

ReadyCap Lending Small Business Trust 2015-1

31,457

31,039

2.4

56,055

55,570

2.0

Total

$
695,304

$
680,282

3.4
%

$
504,317

$
492,942

3.6
%

Repayment of our securitized debt will be dependent upon the cash flows generated by the loans in the securitization trust that collateralize such debt. The actual cash flows from the securitized loans are comprised of coupon interest, scheduled principal payments, prepayments and liquidations of the underlying loans. The actual term of the securitized debt may differ significantly from our estimate given that actual interest collections, mortgage prepayments and/or losses on liquidation of mortgages may differ significantly from those expected.

~~VIE impact on unaudited interim consolidated financial statements~~Common Stock

The following table ~~reflects the securitized assets and liabilities recorded~~provides information on the ~~unaudited interim consolidated balance sheets:~~basic and diluted earnings per share computations, including the number of shares of common stock used for purposes of these computations:

(In Thousands)

September 30, 2017

December 31, 2016
Assets:

Cash and cash equivalents

$
26

$
131
Restricted cash

17,175

808
Loans, net

904,366

655,559
Real estate acquired in settlement of loans

3,439

4,103
Accrued interest

4,519

2,835
Due from servicers

15,369

27,660
Total assets

944,894

691,096
Liabilities:

Securitized debt obligations of consolidated VIEs, net

680,282

492,942
Total liabilities

680,282

492,942
Equity

$
264,612

$
198,154


	Three Months Ended March 31,
(In Thousands, except for share and per share amounts)	2020		2019
Basic Earnings
Net income	$	(51,516)	$	30,450
Less: Income attributable to non-controlling interest		(1,064)		983
Less: Income attributable to participating shares		463		82
Basic earnings	$	(50,915)	$	29,385

Diluted Earnings
Net income	$	(51,516)	$	30,450
Less: Income attributable to non-controlling interest		(1,064)		983
Less: Income attributable to participating shares		463		82
Diluted earnings	$	(50,915)	$	29,385


Number of Shares
Basic — Average shares outstanding		51,984,040		32,556,875
Effect of dilutive securities — Unvested participating shares		5,973		6,769
Diluted — Average shares outstanding		51,990,013		32,563,644

Earnings Per Share Attributable to RC Common Stockholders:
Basic	$	(0.98)	$	0.90
Diluted	$	(0.98)	$	0.90

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single net payment. The ~~following table summarizes~~provisions of the ISDA Master Agreement typically permit a single net payment in the event of default including the bankruptcy or insolvency of the counterparty. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset in bankruptcy, insolvency or other events. In addition, certain ISDA Master Agreements allow counterparties to terminate derivative contracts prior to maturity in the event the Company’s ~~RSU~~stockholders’ equity declines by a stated percentage or the Company fails to meet the terms of its ISDA Master Agreements, which would cause the Company to accelerate payment of any net liability owed to the counterparty. As of March 31, 2020 and ~~RSA activity~~December 31, 2019 and for the ~~three and nine months~~periods then ended, ~~September 30, 2017:~~the Company was in good standing on all of its ISDA Master Agreements or similar arrangements with its counterparties.

Independent Director RSUs

Employee RSAs
(In Thousands, except share data)
Number of shares

Weighted-average grant date fair value
Weighted-average grant date fair value (per share)

Number of shares

Weighted-average grant date fair value
Weighted-average grant date fair value (per share)
Outstanding, January 1

—

$
—
$
—

—

$
—
$
—
Granted

40,000

580

14.50

—

—

—
Vested

(25,000)

(363)

14.50

—

—

—
Forfeited

—

—

—

—

—

—
Canceled

—

—

—

—

—

—
Outstanding, March 31, 2017

15,000

$
217
$
14.50

—

$
—
$
—
Granted

—

—

—

25,851

380

14.70
Vested

(5,000)

(72)

14.50

—

—

—
Forfeited

—

—

—

—

—

—
Canceled

—

—

—

—

—

—
Outstanding, June 30, 2017

10,000

$
145
$
14.50

25,851

$
380
$
14.70
Granted

—

—

—

—

—

14.70
Vested

(5,000)

(72)

14.50

—

—

—
Forfeited

—

—

—

—

—

—
Canceled

—

—

—

—

—

—
Outstanding, September 30, 2017

5,000

$
73
$
14.50

25,851

$
380
$
14.70

~~During~~For derivatives traded under an ISDA Master Agreement, the ~~three~~collateral requirements are listed under the Credit Support Annex, which is the sum of the mark to market for each derivative contract, the independent amount due to the derivative counterparty and ~~nine months ended September 30, 2017,~~any thresholds, if any. Collateral may be in the form of cash or any eligible securities, as defined in the respective ISDA agreements. Cash collateral pledged to and by the Company ~~recognized $0.1 million and $0.5 million of noncash compensation expense, respectively, related to its stock-based incentive plan~~with the counterparty, if any, is reported separately in ~~its~~the unaudited interim consolidated ~~statements~~balance sheets as restricted cash. All margin call amounts must be made before the notification time and must exceed a minimum transfer amount threshold before a transfer is required. All margin calls must be responded to and completed by the close of ~~income.~~business on the same day of the margin call, unless otherwise specified. Any margin calls after the notification time must be completed by the next business day. Typically, the Company and its counterparties are not permitted to sell, rehypothecate or use the collateral posted. To the extent amounts due to the Company from its counterparties are not fully collateralized, the Company bears exposure and the risk of loss from a defaulting counterparty. The Company attempts to mitigate counterparty risk by establishing ISDA agreements with only high grade counterparties that have the financial health to honor their obligations and diversification, entering into agreements with multiple counterparties.

~~At September 30, 2017, approximately $0.5 million~~In accordance with ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of ~~noncash compensation expense related~~Disclosures about Offsetting Assets and Liabilities, the Company is required to ~~unvested awards had not yet been charged~~disclose the impact of offsetting of assets and liabilities represented in the unaudited interim consolidated balance sheets to ~~net income. These costs are expected to be amortized into compensation expense ratably over the course~~enable users of the ~~remainder~~unaudited interim consolidated financial statements to evaluate the effect or potential effect of netting arrangements on its financial position for recognized assets and liabilities. These recognized assets and liabilities are financial instruments and derivative instruments that are either subject to enforceable master netting arrangements or ISDA Master Agreements or meet the ~~respective vesting periods.~~

~~Litigation settlement~~

~~On May 2, 2017,~~following right of setoff criteria: (a) the amounts owed by the Company ~~issued approximately $4.0 million~~to another party are determinable, (b) the Company has the right to set off the amounts owed with the amounts owed by the counterparty, (c) the Company intends to offset, and (d) the Company’s right of offset is enforceable at law. As of March 31, 2020 and December 31, 2019, the Company has elected to offset assets and liabilities associated with its OTC derivative contracts in ~~shares of~~ the ~~Company's common stock (275,862 shares issued) to a counterparty in connection with a litigation settlement.~~

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Table of Contents

Derivative instruments - FX forwards

250

—

250

—

250

Secured borrowings

1,189,392

—

1,189,392

—

Total

$

1,194,642

$

—

$

1,194,642

$

1,189,392

$

5,250

(1)

Amounts presented in these columns are limited in total to the net amount of assets or liabilities presented in the prior column by instrument. In certain cases, there is excess cash collateral or financial assets we have pledged to a counterparty that exceed the financial liabilities subject to a master netting repurchase arrangement or similar agreement. Additionally, in certain cases, counterparties may have pledged excess cash collateral to us that exceeds our corresponding financial assets. In each case, any of these excess amounts are excluded from the table although they are separately reported in our unaudited interim consolidated balance sheets as assets or liabilities, respectively.

(1)

Note 24 – Financial instruments with off-balance sheet risk, credit risk, and certain other risks

In the normal course of business, the Company enters into transactions in various financial instruments that expose us to various types of risk, both on and off balance sheet. Such risks are associated with financial instruments and markets in which the Company invests. These financial instruments expose us to varying degrees of market risk, credit risk, interest rate risk, liquidity risk, off balance sheet risk and prepayment risk.

Market Risk — Market risk is the potential adverse changes in the values of the financial instrument due to unfavorable changes in the level or volatility of interest rates, foreign currency exchange rates, or market values of the underlying financial instruments. We attempt to mitigate our exposure to market risk by entering into offsetting transactions, which may include purchase or sale of interest-bearing securities and equity securities.

Credit Risk — The Company is subject to credit risk in connection with our investments in SBC loans and SBC MBS and other target assets we may acquire in the future. The credit risk related to these investments pertains to the ability and willingness of the borrowers to pay, which is assessed before credit is granted or renewed and periodically reviewed throughout the loan or security term. We believe that loan credit quality is primarily determined by the borrowers' credit profiles and loan characteristics. We seek to mitigate this risk by seeking to acquire assets at appropriate prices given anticipated and unanticipated losses and by deploying a ~~reconciliation~~value−driven approach to underwriting and diligence, consistent with our historical investment strategy, with a focus on projected cash flows and potential risks to cash flow. We further mitigate our risk of ~~both income from continuing operations~~potential losses while managing and servicing our loans by performing various workout and loss mitigation strategies with delinquent borrowers. Nevertheless, unanticipated credit losses could occur which could adversely impact operating results.

The Company is also subject to credit risk with respect to the counterparties to derivative contracts. If a counterparty becomes bankrupt or otherwise fails to perform its obligation under a derivative contract due to financial difficulties, we may experience significant delays in obtaining any recovery under the derivative contract in a dissolution, assignment for the benefit of creditors, liquidation, winding-up, bankruptcy, or other analogous proceeding. In the event of the insolvency of a counterparty to a derivative transaction, the derivative transaction would typically be terminated at its fair market value. If we are owed this fair market value in the termination of the derivative transaction and its claim is unsecured, we will be treated as a general creditor of such counterparty, and will not have any claim with respect to the underlying security. We may obtain only a limited recovery or may obtain no recovery in such circumstances. In addition, the business failure of a counterparty with whom we enter a hedging transaction will most likely result in its default, which may result in the loss of potential future value and the loss of our hedge and force us to cover our commitments, if any, at the then current market price.

Counterparty credit risk is the risk that counterparties may fail to fulfill their obligations, including their inability to post additional collateral in circumstances where their pledged collateral value becomes inadequate. The Company attempts to manage its exposure to counterparty risk through diversification, use of financial instruments and monitoring the creditworthiness of counterparties.

The Company finances the acquisition of a significant portion of its loans and investments with repurchase agreements and borrowings under credit facilities. In connection with these financing arrangements, the Company pledges its loans, securities and cash as collateral to secure the borrowings. The amount of collateral pledged will typically exceed the amount of the borrowings (i.e., the haircut) such that the borrowings will be over-collateralized. As a result, the Company is exposed to the counterparty if, during the term of the repurchase agreement financing, a lender should default on its obligation and the Company is not able to recover its pledged assets. The amount of this exposure is the difference between

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Table of Contents

the amount loaned to the Company plus interest due to the counterparty and the fair value of the collateral pledged by the Company to the lender including accrued interest receivable on such collateral.

GMFS sells loans to investors without recourse. As such, the investors have assumed the risk of loss or default by the borrower. However, GMFS is usually required by these investors to make certain standard representations and warranties relating to credit information, loan documentation and collateral. To the extent that GMFS does not comply with such representations, or there are early payment defaults, GMFS may be required to repurchase the loans or indemnify these investors for any losses from ~~discontinued operations,~~borrower defaults. In addition, if loans pay-off within a specified time frame, GMFS may be required to refund a portion of the sales proceeds to the investors.

Liquidity Risk — Liquidity risk arises in our investments and the general financing of our investing activities. It includes the risk of not being able to fund acquisition and origination activities at settlement dates and/or liquidate positions in a timely manner at reasonable prices, in addition to potential increases in collateral requirements during times of heightened market volatility. If we were forced to dispose of an illiquid investment at an inopportune time, we might be forced to do so at a substantial discount to the market value, resulting in a realized loss. We attempt to mitigate our liquidity risk by regularly monitoring the liquidity of our investments in SBC loans, MBS and other financial instruments. Factors such as our expected exit strategy for, the bid to offer spread of, and the number of ~~shares~~broker dealers making an active market in a particular strategy and the availability of ~~common stock used~~long-term funding, are considered in analyzing liquidity risk. To reduce any perceived disparity between the ~~computation of basic income per share. This reconciliation has been retrospectively adjusted for the equivalent number of shares after the reverse acquisition.~~

Three Months Ended September 30,

Nine Months Ended September 30,
(In Thousands, except for share and per share amounts)

2017

2016

2017

2016
Basic Earnings

Continuing Operations

Income from continuing operations

$
12,374

$
9,571

$
33,084

$
27,683

Less: Income attributable to non-controlling interest

533

777

1,891

2,217

Less: Income attributable to participating shares

15

-

37

-

  Basic - Income from continuing operations

$
11,826

$
8,794

$
31,156

$
25,466

Discontinued Operations

Loss from discontinued operations

-

-

-

(351)

  Basic — Net income attributable to common stockholders after allocation to participating shares

$
11,826

$
8,794

$
31,156

$
25,115

Diluted Earnings

Continuing Operations

Basic — Income from continuing operations

$
12,374

$
9,571

$
33,084

$
27,683

Less: Income attributable to non-controlling interest

533

777

1,891

2,217

Less: Income attributable to participating shares

15

-

37

-

Add: Undistributed earnings to participating shares

-

-

-

-

Less: Undistributed earnings reallocated to participating shares

-

-

-

-

  Diluted — Income from continuing operations

$
11,826

$
8,794

$
31,156

$
25,466

Discontinued Operations

Basic — Loss from discontinued operations

-

-

-

(351)

  Diluted  — Net income attributable to common stockholders after allocation to participating shares

$
11,826

$
8,794

$
31,156

$
25,115

Number of Shares

Basic — Average shares outstanding

32,026,494

25,870,485
(1)

31,120,476

25,870,485
(1)
Effect of dilutive securities — Unvested participating shares

2,486

-

973

-

  Diluted — Average shares outstanding

32,028,980

25,870,485

31,121,449

25,870,485

Basic

Income from continuing operations

$
0.37

$
0.34

$
1.00

$
0.98

Loss from discontinued operations

-

-

-

(0.01)

Diluted

Income from continuing operations

$
0.37

$
0.34

$
1.00

$
0.98

Loss from discontinued operations

-

-

-

(0.01)

(1) Retroactively adjusted for the equivalent number of shares after the reverse acquisition using an exchange rate of 0.8356.

As of September 30, 2017, 5,000 participating unvested RSUs were excluded from the computation of diluted shares as their effect was already considered under the more dilutive two-class method used above.

~~Additionally, as of September 30, 2017, there are potential shares of common stock contingently issuable upon the conversion of the Convertible Notes in the future. The Company has asserted its intent~~liquidity and ~~ability to settle the principal amount of the Convertible Notes in cash.~~Based on this assessment, we determined that it would be appropriate to apply a method similar to the treasury stock method and would be assessed each quarter, with our other potentially dilutive instruments. In order to compute the dilutive effect, the number of shares included in the denominator of diluted EPS is determined by dividing the “conversion spread value” of the share-settled portion (value above accreted value of face value and interest component) of the instrument by the share price. The “conversion spread value” is the value that would be delivered to investors in shares based on the terms of the ~~bond upon~~debt instruments in which we invest, we attempt to minimize our reliance on short-term financing arrangements. While we may finance certain investment in security positions using traditional margin arrangements and borrowings under repurchase agreements, other financial instruments such as collateralized debt obligations, and other longer term financing vehicles may be utilized to attempt to provide us with sources of long-term financing.

Off‑Balance Sheet Risk —The Company has undrawn commitments on outstanding loans which are disclosed in Note 25.

Interest Rate — Interest rate risk is highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.

Our operating results will depend, in part, on differences between the income from our investments and our financing costs. Generally, our debt financing is based on a floating rate of interest calculated on a fixed spread over the relevant index, subject to a floor, as determined by the particular financing arrangement. In the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in credit losses to us, which could materially and adversely affect our business, financial condition, liquidity, results of operations and prospects. Furthermore, such defaults could have an ~~assumed conversion.~~adverse effect on the spread between our interest-earning assets and interest-bearing liabilities.

Additionally, non-performing SBC loans are not as interest rate sensitive as performing loans, as earnings on non-performing loans are often generated from restructuring the assets through loss mitigation strategies and opportunistically disposing of them. Because non-performing SBC loans are short-term assets, the discount rates used for valuation are based on short-term market interest rates, which may not move in tandem with long-term market interest rates. A rising rate environment often means an improving economy, which might have a positive impact on commercial property values, resulting in increased gains on the disposition of these assets.

While rising rates could make it more costly to refinance these assets, we expect that the impact of this would be mitigated by higher property values. Moreover, small business owners are generally less interest rate sensitive than large commercial property owners, and interest cost is a relatively small component of their operating expenses. An improving economy will likely spur increased property values and sales, thereby increasing the need for SBC financing.

Prepayment Risk — As we receive prepayments of ~~September 30, 2017,~~principal on our investments, premiums paid on such investments will be amortized against interest income. In general, an increase in prepayment rates will accelerate the ~~conversion spread~~amortization of purchase premiums, thereby reducing the interest income earned on the investments and this is also affected by interest rate movements. Conversely, discounts on such investments are accreted into interest income. In general, an increase in prepayment rates will accelerate the accretion of purchase discounts, thereby increasing the interest income earned on the investments. An increase in prepayment rates will also adversely affect the fair value ~~is currently zero, since the closing price~~ of our ~~common stock does not exceed the conversion rate (strike price) and are “out-of-the-money”, resulting in no impact on diluted EPS.~~MSRs.

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Certain investors own OP units in our operating partnership. An OP unit and a share of common stock of the Company have substantially the same economic characteristics in as much as they effectively share equally in the net income or loss of the operating partnership. OP unit holders have the right to redeem their OP units, subject to certain restrictions. The redemption is required to be satisfied in shares of common stock or cash at the Company's option, calculated as follows: one share of the Company's common stock, or cash equal to the fair value of a share of the Company's common stock at the time of redemption, for each OP unit. When an OP unit holder redeems an OP unit, non-controlling interests in the Operating Partnership is reduced and the Company's equity is increased. At September 30, 2017 and December 31, 2016, the non-controlling interest OP unit holders owned 1,150,827 and 2,349,561, OP units, respectively, or 3.5% and 7.1% of the OP units issued by our operating partnership.

Note 25 – ~~Interest Income~~Commitments, contingencies and ~~Interest Expense~~indemnifications

~~Interest income~~Litigation

The Company may be subject to litigation and ~~interest expense are recorded~~administrative proceedings arising in the ordinary course of its business.

The Company has entered into agreements, which provide for indemnifications against losses, costs, claims, and liabilities arising from the performance of individual obligations under such agreements. The Company has had no prior claims or payments pursuant to these agreements. The Company’s individual maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on history and experience, the Company expects the risk of loss to be remote.

Management is not aware of any other contingencies that would require accrual or disclosure in the unaudited interim consolidated ~~statements~~financial statements.

Unfunded Loan Commitments

As of ~~income~~March 31, 2020 and ~~classified based~~December 31, 2019, unfunded loan commitments for SBC loans were as follows:


	March 31,		December 31,
(In Thousands)	2020		2019
Loans, net	$	329,809	$	128,719
Loans, held for sale at fair value	$	8,855	$	6,982

Commitments to Originate Loans

GMFS enters into IRLCs with customers who have applied for residential mortgage loans and meet certain credit and underwriting criteria. These commitments expose GMFS to market risk if interest rates change, and the loan is not economically hedged or committed to an investor. GMFS is also exposed to credit loss if the loan is originated and not sold to an investor and the borrower does not perform.

Commitments to originate loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon. As of March 31, 2020 and December 31, 2019, total commitments to originate loans were as follows:

Note 26 – Income Taxes

The Company is a REIT pursuant to Internal Revenue Code Section 856. Our qualification as a REIT depends on our ability to meet various requirements imposed by the Internal Revenue Code, which relate to our organizational structure, diversity of stock ownership and certain requirements with regard to the nature of our assets and the ~~underlying asset or liability.~~sources of our income. As a REIT, we generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments and excluding any net capital gain, in order for U.S. federal income tax not to apply to our earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. Even if we qualify as a REIT, we may be subject to certain U.S. federal income and excise taxes and state and local taxes on our income and assets. If we fail to maintain our qualification as a REIT for any taxable year, we may be subject to material penalties as well as federal, state and local income tax on our taxable income at regular corporate rates and we would not be able to qualify as a REIT for the subsequent four taxable years. As of March 31, 2020 and December 31, 2019, we are in compliance with all REIT requirements.

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~~The following table presents~~Certain of our subsidiaries have elected to be treated as taxable REIT subsidiaries (“TRSs”). TRSs permit us to participate in certain activities that would not be qualifying income if earned directly by the ~~components~~parent REIT, as long as these activities meet specific criteria, are conducted within the parameters of ~~interest income~~certain limitations established by the Internal Revenue Code, and ~~expense:~~are conducted in entities which elect to be treated as taxable subsidiaries under the Internal Revenue Code. To the extent these criteria are met, we will continue to maintain our qualification as a REIT.

Three Months Ended September 30,

Nine Months Ended September 30,
(In Thousands)

2017

2016

2017

2016
Interest income

Loans

   Acquired SBA 7(a) loans

$
8,807

$
10,186

$
28,349

$
36,066
   Acquired loans

7,335

10,238

26,065

35,103
   Originated Transitional loans

8,711

2,043

17,248

5,127
   Originated SBC loans, at fair value

1,531

3,950

5,361

9,784
   Originated SBC loans

5,703

4,527

16,924

13,899
   Originated SBA 7(a) loans

232

15

585

(77)
   Originated Residential Agency loans

11

—

236

—
Total loans (1)

$
32,330

$
30,959

$
94,768

$
99,902
Held for sale, at fair value, loans

   Originated Residential Agency loans

$
930

$
—

$
2,784

$
—
   Originated Freddie loans

713

164

1,137

352
   Originated SBA 7(a) loans

171

—

965

—
Total loans, held for sale, at fair value

$
1,814

$
164

$
4,886

$
352
Mortgage backed securities, at fair value

894

767

2,515

4,028
Total interest income

$
35,038

$
31,890

$
102,169

$
104,282
Interest expense

Secured short-term borrowings

$
(6,365)

$
(6,508)

$
(20,669)

$
(18,083)
Securitized debt obligations of consolidated VIEs

(6,292)

(4,233)

(16,174)

(13,174)
Guaranteed loan financing

(3,189)

(3,338)

(9,973)

(10,701)
Senior secured note

(2,744)

—

(5,311)

—
Convertible note

(1,260)

—

(1,260)

—
Promissory note

(58)

(18)

(192)

(85)
Total interest expense

$
(19,908)

$
(14,097)

$
(53,579)

$
(42,043)
Net interest income before provision for loan losses

$
15,130

$
17,793

$
48,590

$
62,239
(1) Includes interest income on loans in consolidated VIEs.

Our TRSs engage in various real estate related operations, including originating and securitizing commercial and residential mortgage loans, and investments in real property. The majority of our TRSs are held within the SBC originations, SBA originations, acquisitions and servicing, and residential mortgage banking segments. Our TRSs are not consolidated for federal income tax purposes, but are instead taxed as corporations. For financial reporting purposes, a provision for current and deferred income taxes is established for the portion of earnings recognized by us with respect to our interest in TRSs.

On March 27, 2020, President Trump signed into law the ‘Coronavirus Aid, Relief, and Economic Security Act’ (the “CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, and technical corrections to tax depreciation methods for qualified improvement property. We continue to examine the impact the CARES Act may have on our business. As of March 31, 2020, we have recognized a benefit of $2.9 million due to changes in net operating loss carryback provisions which allow net operating losses from tax years beginning in 2018, 2019, or 2020 to be carried back for five years.

During the three months ended March 31, 2020 and 2019, we recorded an income tax benefit of $7.9 million and $3.0 million, respectively. The income tax expense for the above periods primarily related to activities of our taxable REIT subsidiaries, including the impact of our ability to carry back net operating losses to pre-tax reform years as a result of the CARES Act in the first quarter of 2020,and various state and local taxes. There were no material changes to uncertain tax positions or valuation allowance assessments during the quarter.

Note 2627 – Segment ~~Reporting~~reporting

The Company reports its results of operations through the following four business segments: i) Loan Acquisitions, ii) SBC Originations, iii) SBA Originations, Acquisitions and Servicing, and iv) Residential Mortgage Banking. The Company’s organizational structure is based on a number of factors that the Chief Operating Decision Maker (“CODM”), the Chief Executive Officer, ~~(“CEO”),~~ uses to evaluate, view, and run its business operations, which includes customer base and nature of loan program types. The segments are based on this organizational structure and the information reviewed by the CODM and management to evaluate segment results.

~~Loan~~ Acquisitions

Through the ~~Loan Acquisitions~~acquisitions segment, the Company acquires performing and non-performing SBC loans and intends to continue to acquire these loans as part of the Company’s business strategy. The Company also acquires purchased future receivables through our Knight Capital platform.

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Residential ~~Mortgage Banking~~mortgage banking

Through the ~~Residential Mortgage Banking~~residential mortgage banking segment, the Company originates residential mortgage loans eligible to be purchased, guaranteed or insured by Fannie Mae, Freddie Mac, FHA, USDA and VA through retail, correspondent and broker channels. The historical results of our Residential mortgage banking segment has been reclassified in the unaudited interim consolidated statements of income to conform to our current period’s presentation of gains on residential mortgage banking activities, net of variable loan expenses.

~~Corporate-~~Corporate - Other

~~Corporate-~~Corporate - Other consists primarily of unallocated corporate financing, including interest expense relating to our senior secured and convertible notes on funds yet to be deployed, allocated employee compensation from our Manager, management and incentive fees paid to our Manager ~~as well as~~and other general corporate overhead expenses.

~~Segment Realignment~~

Effective at the beginning of the third quarter of 2017, the Company implemented organizational changes to align its segment financial reporting more closely with its current business practices. These organizational changes resulted in securitization activities on originated SBC and SBA loans being transferred out of the Loan Acquisitions segment and into either the SBC originations or SBA originations, acquisitions, and servicing segment, based on loan type. These organizational changes also resulted in the Company presenting ~~Corporate- Other~~ amounts separately and no longer reflecting these amounts as part of the four business segments. Prior period numbers were revised to conform to the new segment alignment and to be consistent with our current period’s presentation.

~~In accordance with ASC 280,~~ ~~Segment Reporting~~, the Company has not included discontinued operations in the segment reporting. The Company uses segment net income or loss from continuing operations as the measure of profitability of its reportable segments.

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Reportable business segments, along with remaining unallocated amounts recorded within Corporate- Other, for the three months ended ~~September 30, 2016~~March 31, 2019 are summarized in the below table.


					SBA Originations,		Residential										SBA Originations,		Residential
	Loan		SBC		Acquisitions,		Mortgage		Corporate-						SBC		Acquisitions,		Mortgage		Corporate-
(In Thousands)	Acquisitions		Originations		and Servicing		Banking		Other		Consolidated		Acquisitions		Originations		and Servicing		Banking		Other		Consolidated
Interest income	$	10,679	$	11,010	$	10,201	$	—	$	—	$	31,890	$	10,674	$	28,188	$	9,109	$	782	$	—	$	48,753
Interest expense		(4,398)		(5,152)		(4,199)		—		(348)		(14,097)		(7,705)		(20,666)		(6,490)		(914)		—		(35,775)
Net interest income before provision for loan losses	$	6,281	$	5,858	$	6,002	$	—	$	(348)	$	17,793	$	2,969	$	7,522	$	2,619	$	(132)	$	—	$	12,978
Provision for loan losses		153		—		(641)		—		—		(488)		(133)		41		(426)		—		—		(518)
Net interest income after provision for loan losses	$	6,434	$	5,858	$	5,361	$	—	$	(348)	$	17,305	$	2,836	$	7,563	$	2,193	$	(132)	$	—	$	12,460
Non-interest income (expense)
Gains on residential mortgage banking activities, net of variable loan expenses	$	—	$	—	$	—	$	—	$	—	$	—
Non-interest income
Residential mortgage banking activities													$	—	$	—	$	—	$	14,587	$	—	$	14,587
Net realized gain (loss) on financial instruments														(49)		3,540		3,791		—		—		7,282
Net unrealized gain (loss) on financial instruments														(19)		810		(575)		(7,128)		—		(6,912)
Servicing income														1		436		1,015		5,300		—		6,752
Income on unconsolidated joint ventures														2,929		—		—		—		—		2,929
Other income		494		1,582		(347)		—		—		1,729		68		786		14		17		15		900
Servicing income		6		135		1,520		—		—		1,661
Gain on bargain purchase														—		—		—		—		30,728		30,728
Total non-interest income													$	2,930	$	5,572	$	4,245	$	12,776	$	30,743	$	56,266
Non-interest expense
Employee compensation and benefits		128		(2,351)		(2,567)		—		(32)		(4,822)	$	(1)	$	(2,260)	$	(3,768)	$	(4,595)	$	(824)	$	(11,448)
Allocated employee compensation and benefits from related party		(90)		—		—		—		(810)		(900)		(85)		—		—		—		(768)		(853)
Variable expenses on residential mortgage banking activities														—		—		—		(9,176)		—		(9,176)
Professional fees		(658)		(422)		(901)		—		(1,139)		(3,120)		(170)		(301)		(187)		(236)		(935)		(1,829)
Management fees – related party		—		—		—		—		(1,793)		(1,793)		—		—		—		—		(1,997)		(1,997)
Loan servicing (expense) income		(1,327)		(337)		(166)		—		—		(1,830)
Loan servicing expense														(801)		(1,215)		143		(1,740)		(35)		(3,648)
Merger related expenses														—		—		—		—		(5,467)		(5,467)
Other operating expenses		(473)		(1,530)		(985)		—		(385)		(3,373)		(421)		(2,117)		(1,050)		(2,073)		(1,200)		(6,861)
Total non-interest income (expense)	$	(1,920)	$	(2,923)	$	(3,446)	$	—	$	(4,159)	$	(12,448)
Net realized gain on financial instruments		595		339		1,489		—		31		2,454
Net unrealized gain on financial instruments		284		3,158		—		—		115		3,557
Total non-interest expense													$	(1,478)	$	(5,893)	$	(4,862)	$	(17,820)	$	(11,226)	$	(41,279)
Net income (loss) before provision for income taxes	$	5,393	$	6,432	$	3,404	$	—	$	(4,361)	$	10,868	$	4,288	$	7,242	$	1,576	$	(5,176)	$	19,517	$	27,447
Provision for income taxes		—		(297)		(973)		—		(27)		(1,297)
Net income (loss)	$	5,393	$	6,135	$	2,431		-		(4,388)	$	9,571
Total Assets	$	519,531	$	754,127	$	625,023	$	—	$	249,997	$	2,148,678
Total assets													$	864,881	$	1,823,166	$	251,778	$	277,727	$	61,462	$	3,279,014

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~~Reportable business segments, along with remaining unallocated amounts recorded within Corporate- Other, for~~

During the ~~nine~~three months ended ~~September 30, 2016 are summarized~~March 31, 2020 and 2019, the Company recorded a loss of $3.5 million and $2.9 million of income, respectively, which is based on our proportional ownership interest in the ~~below table.~~entities above. These amounts are reflected in Income on unconsolidated joint ventures within the interim unaudited statement of income.

SBA Originations,

Residential




Loan

SBC

Acquisitions,

Mortgage

Corporate-

(In Thousands)

Acquisitions

Originations

and Servicing

Banking

Other

Consolidated
Interest income

$
38,492

$
29,801

$
35,989

$
—

$
—

$
104,282
Interest expense

(13,235)

(14,998)

(13,309)

—

(501)

(42,043)
Net interest income before provision for loan losses

$
25,257

$
14,803

$
22,680

$
—

$
(501)

$
62,239
Provision for loan losses

(3,370)

—

(1,319)

—

—

(4,689)
Net interest income after provision for loan losses

$
21,887

$
14,803

$
21,361

$
—

$
(501)

$
57,550
Non-interest income (expense)

Gains on residential mortgage banking activities, net of variable loan expenses

$
—

$
—

$
—

$
—

$
—

$
—
Other income

778

3,161

1,396

—

—

5,335
Servicing income

41

371

4,008

—

—

4,420
Employee compensation and benefits

(94)

(6,689)

(7,105)

—

(117)

(14,005)
Allocated employee compensation and benefits from related party

(270)

—

—

—

(2,430)

(2,700)
Professional fees

(2,009)

(1,246)

(2,942)

—

(2,376)

(8,573)
Management fees – related party

—

—

—

—

(5,464)

(5,464)
Loan servicing expense

(3,382)

(939)

432

—

—

(3,889)
Other operating expenses

(1,703)

(5,049)

(2,993)

—

(1,440)

(11,185)
Total non-interest income (expense)

$
(6,639)

$
(10,391)

$
(7,204)

$
—

$
(11,827)

$
(36,061)
Net realized (loss) gain on financial instruments

(1,473)

1,687

3,426

—

80

3,720
Net unrealized gain on financial instruments

3,955

1,727

—

—

118

5,800
Net income before provision for income taxes

$
17,730

$
7,826

$
17,583

$
—

$
(12,130)

$
31,009
Provisions for income taxes

—

2,150

(5,637)

—

161

(3,326)
Net income (loss) from continuing operations

$
17,730

$
9,976

$
11,946

$
—

$
(11,969)

$
27,683
Loss from discontinued operations

(351)
Net income

$
27,332
Total Assets

$
519,531

$
754,127

$
625,023

$
—

$
249,997

$
2,148,678

Note 29 – Subsequent events

As of May 11, 2020, the Company has facilitated the fundings of approximately $2.1 billion of loans through the U.S. Small Business Administration's Paycheck Protection Program ("PPP"). Through the CARES Act, the initiative calls for existing SBA lenders to extend loans to small businesses to cover payroll, occupancy and operating expenses through the PPP. Furthermore, the PPP includes a 100% guarantee from the federal government for loans up to $10 million and principal forgiveness for borrowers if the funds are used primarily for retaining employees. Since the Company opened its PPP loan portal, it has accepted more than 40,000 applications and has obtained SBA approvals to fund in excess of $2.9 billion of loans across the U.S.

~~Note 27 – Discontinued Operations~~

In the fourth quarter of 2015, the Company determined Silverthread should be classified as held-for-sale due to management’s intent to sell the segment, the availability and active marketing of the segment for immediate sale and the high probability of a successful sale.

The sale of Silverthread closed in May of 2016, with an effective economic date of March 1, 2016. We negotiated an agreement with the buyer to receive $4.0 million, $1.7 million of which was received in early March of 2017. The remaining balance is expected at the end of November 2017. The net estimated receivable of $2.3 million is included in Receivable from Third Parties on the unaudited interim consolidated Balance Sheet as September 30, 2017. The operating results during the three and nine months ended September 30, 2017 and 2016 did not have a material impact on our unaudited interim consolidated financial statements.

~~As of September 30, 2017 and December 31, 2016, there were no assets or liabilities of the discontinued segment.~~

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~~The primary components of discontinued operations are detailed in the table below:~~

Three Months Ended September 30,

Nine Months Ended September 30,

(In Thousands)

2017

2016

2017

2016

Non-interest income (expense)

Commission income

$
—

$
—

$
—

$
2,984

Property management income

—

—

—

263

Other

—

—

—

16

Total other income

$
—

$
—

—

3,263

Employee compensation and benefits

—

—

—

(1,071)

Professional fees

—

—

—

(138)

Management fees – related party

—

—

—

—

Operating expenses

Commission expense

—

—

—

(1,844)

Technology expense

—

—

—

(171)

Rent expense

—

—

—

(268)

Tax expense

—

—

—

(3)

Recruiting, training, and travel expenses

—

—

—

(46)

Marketing expense

—

—

—

(29)

Other

—

—

—

(536)

Total other operating expenses

$
—

$
—

—

(2,897)

Gain on sale

—

—

—

267

Loss before income tax benefit

—

—

—

(576)

Income tax benefit

—

—

—

225

Loss on discontinued operations presented on the statements of income

$
—

$
—

$
—

$
(351)

Item 1A. Forward-Looking Statements

~~Although~~ ~~Sutherland Asset Management Corporation (the “Company” or “Sutherland” and together with its subsidiaries~~Except where the context suggests otherwise, the terms “Company,” “we,” “us” and “our” refer to Ready Capital Corporation and its subsidiaries. We make forward-looking statements in this quarterly report on Form 10-Q within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”)~~believes~~, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). For these statements, we claim the protections of the safe harbor for forward-looking statements contained in such Sections. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. These forward-looking statements include information about possible or assumed future results of our operations, financial condition, liquidity, plans and objectives. When we use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “could,” “would,” “may,” “potential” or the negative of these terms or other comparable terminology, we intend to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking:

·

our investment objectives and business strategy;

·

our ability to obtain future financing arrangements;

·

our expected leverage;

·

our expected investments;

·

estimates or statements relating to, and our ability to make, future distributions;

·

our ability to compete in the marketplace;

·

the availability of attractive risk-adjusted investment opportunities in small to medium balance commercial loans (“SBC loans”), loans guaranteed by the U.S. Small Business Administration (the “SBA”) under its Section 7(a) loan program (the “SBA Section 7(a) Program”), mortgage backed securities (“MBS”), residential mortgage loans and other real estate-related investments that satisfy our investment objectives and strategies;

·

our ability to borrow funds at favorable rates;

·

market, industry and economic trends;

·

recent market developments and actions taken and to be taken by the U.S. Government, the U.S. Department of the Treasury (“Treasury”) and the Board of Governors of the Federal Reserve System, the Federal Depositary Insurance Corporation, the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac” and together with Fannie Mae, the “GSEs”), the Government National Mortgage Association (“Ginnie Mae”), Federal Housing Administration (“FHA”) Mortgagee, U.S. Department of Agriculture (“USDA”), U.S. Department of Veterans Affairs (“VA”) and the U.S. Securities and Exchange Commission (“SEC”);

·

mortgage loan modification programs and future legislative actions;

·

our ability to maintain our qualification as a real estate investment trust (“REIT”);

·

our ability to maintain our exemption from qualification under the Investment Company Act of 1940, as amended (the “1940 Act” or “Investment Company Act”);

·

projected capital and operating expenditures;

·

availability of qualified personnel;

·

prepayment rates; and

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·

projected default rates.

Our beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or are within our control, including:

·

factors described in our 2019 annual report on Form 10‑K, including those set forth under the captions “Risk Factors” and “Business”;

·

the severity and duration of the COVID-19 pandemic;

·

actions that may be taken by governmental authorities to contain the COVID-19 outbreak or treat its impact;

·

negative impacts of COVID-19 on the U.S. and global economy and the impacts of COVID-19 on our business, financial position or results of operations;

·

applicable regulatory changes;

·

risks associated with acquisitions, including the acquisition of Owens Realty Mortgage, Inc. (“ORM”) and Knight Capital LLC (“Knight Capital”);

·

risks associated with achieving expected revenue synergies, cost savings and other benefits from acquisitions, including the acquisition of ORM and Knight Capital, and the increased scale of our Company;

·

general volatility of the capital markets;

·

changes in our investment objectives and business strategy;

·

the availability, terms and deployment of capital;

·

the availability of suitable investment opportunities;

·

our dependence on our external advisor, Waterfall Asset Management, LLC (“Waterfall” or our “Manager”), and our ability to find a suitable replacement if we or our Manager were to terminate the management agreement we have entered into with our Manager;

·

changes in our assets, interest rates or the general economy;

·

our expectations about the impact of natural disasters and public health epidemics, such as the coronavirus (COVID-19), on our business, results of operations and financial condition;

·

increased rates of default and/or decreased recovery rates on our investments;

·

changes in interest rates, interest rate spreads, the yield curve or prepayment rates; changes in prepayments of our assets;

·

limitations on our business as a result of our qualification as a REIT; and

·

the degree and nature of our competition, including competition for SBC loans, MBS, residential mortgage loans and other real estate-related investments that satisfy our investment objectives and strategies.

Upon the occurrence of these or other factors, our business, financial condition, liquidity and consolidated results of operations may vary materially from those expressed in, or implied by, any such forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the potential impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. In particular, it is difficult to fully assess the impact of COVID-19 on our business, financial conditionand results of operations due to, among other

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factors, uncertainty regarding the severity and duration of the outbreak domestically and internationally, uncertainty regarding the effectiveness of federal, state and local governments’ efforts to contain the spread of COVID-19 and respond to its direct and indirect impact on the global economy, the U.S. economy and economic activity generally.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievements. These forward-looking statements apply only as of the date of this quarterly report on Form 10-Q. The Company is not obligated, and does not intend, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. See Item 1A, "Risk Factors," of the Company's annual report on Form 10-K.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in five main sections:

·

Overview

·

Results of Operations

·

Liquidity and Capital Resources

·

Off Balance Sheet Arrangements and Contractual Obligations

·

Critical Accounting Policies and Estimates

The following discussion should be read in conjunction with ~~the Company's~~our unaudited interim consolidated financial statements and accompanying Notes included in Item 1, "Financial Statements," of this quarterly report on Form 10-Q and with Items 6, 7, 8, and 9A of ~~the Company's~~our annual report on Form 10-K. See "Forward-Looking Statements" in this quarterly report on Form 10-Q and in ~~the Company's~~our annual report on Form 10-K and "Critical Accounting Policies and Use of Estimates" in ~~the Company's~~our annual report on Form 10-K for certain other factors that could cause actual results or future events to differ, perhaps materially, from historical performance and from those anticipated in the forward-looking statements included in this quarterly report on Form 10-Q.

~~Overview~~OVERVIEW

Our Business

We are a multi-strategy real estate finance company that originates, acquires, ~~originates, manages,~~finances, and services ~~and finances primarily small balance commercial (“SBC”) loans.~~ SBC loans, SBA loans, residential mortgage loans, and to a lesser extent, MBS collateralized primarily by SBC loans, or other real estate-related investments. Our loans generally range in original principal ~~amount of between $500,000 and $10~~amounts up to $35 million and are used by ~~small~~ businesses to purchase real estate used in their operations or by investors seeking to acquire small multi-family, office, retail, mixed use or warehouse properties. Our ~~acquisition~~originations and ~~origination~~acquisition platforms consist of the following four operating segments:

·

~~Loan~~ Acquisitions. We acquire performing and non-performing SBC loans ~~and intend to continue to acquire these loans~~ as part of our business strategy. We hold performing SBC loans to term, and we seek to maximize the value of the non-performing SBC loans acquired by us through ~~proprietary loan modification programs.~~borrower based resolution strategies. We typically acquire non-performing loans at a discount to

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products under ~~the newly launched small balance loan program of~~ the Federal Home Loan Mortgage ~~Corporation~~Corporation’s Small Balance Loan Program (“Freddie Mac” and the “Freddie Mac program”). These originated loans are held for sale, then sold to Freddie Mac.

·

SBA Originations, Acquisitions and Servicing. We acquire, originate and service owner-occupied loans guaranteed by the ~~Small Business Administration (“SBA”)~~ SBA under its Section 7(a) loan program (the “SBA Section 7(a) Program”) through our wholly-owned subsidiary, ReadyCap ~~Lending.~~Lending, LLC (“ReadyCap Lending”). We hold an SBA license as one of only 14 non-bank Small Business Lending Companies (“SBLCs”) and have been granted preferred lender status by the SBA. ~~In the future, we may originate SBC~~These originated loans ~~for real estate under the SBA 504 loan program, under which the SBA guarantees subordinated, long-term financing.~~are either held-for-investment, placed into securitization structures, or sold.

·

Residential Mortgage Banking. ~~In connection with~~We operate our ~~merger with ZAIS Financial Corp. (“ZAIS”) on October 31, 2016, as described in greater detail below, we added a~~ residential mortgage loan origination segment through our wholly-owned subsidiary, GMFS, LLC ("GMFS"). GMFS originates residential mortgage loans eligible to be purchased, guaranteed or insured by the Federal National Mortgage Association (“Fannie Mae”), Freddie Mac, Federal Housing Administration (“FHA”), U.S. Department of Agriculture (“USDA”) and U.S. Department of Veterans Affairs (“VA”) through retail, correspondent and broker channels. These originated loans are then sold to third parties, primarily agency lending programs.

Our objective is to provide attractive risk-adjusted returns to our stockholders, primarily through dividends and secondarily through capital appreciation. In order to achieve this objective, we intend to continue to grow our investment portfolio and we believe that the breadth of our full service real estate finance platform will allow us to adapt to market conditions and deploy capital in our asset classes and segments with the most attractive risk-adjusted returns.

We are organized and conduct our operations to qualify as a ~~real estate investment trust ("REIT")~~REIT under the ~~Internal Revenue Code of 1986, as amended (the “Code”).~~Code. So long as we qualify as a REIT, we are generally not subject to U.S. federal income tax on our net taxable income to the extent that we annually distribute all of our net taxable income to stockholders. We are organized in a traditional ~~umbrella partnership REIT (“UpREIT”)~~UpREIT format pursuant to which we serve as the general partner of, and conduct substantially all of our business through Sutherland Partners, LP, or our operating partnership, which serves as our operating partnership subsidiary. We also intend to operate our business in a manner that will permit us to be excluded from registration as an investment company under the ~~Investment Company Act~~1940 Act.

For additional information on our business, refer to Part I, Item 1, Business of ~~1940, as amended (the “1940 Act”).~~our 2019 Annual Report on Form 10-K.

Factors Impacting Operating Results

We expect that our results of operations will be affected by a number of factors and will primarily depend on, among other things, the level of the interest income from our assets, the market value of our assets and the supply of, and demand for, SBC and SBA loans, residential loans, MBS and other assets we may acquire in the future and the financing and other costs associated with our business. Our net investment income, which includes the amortization of purchase premiums and accretion of purchase discounts, varies primarily as a result of changes in market interest rates, the rate at which our distressed assets are liquidated and the prepayment speed of our performing assets. Interest rates and prepayment speeds vary according to the type of investment, conditions in the financial markets, competition and other factors, none of which can be predicted with any certainty. Our operating results may also be impacted by conditions in the financial markets, credit losses in excess of initial estimates or unanticipated credit events experienced by borrowers whose loans are held directly by us or are included in our MBS. Our operating results may also be impacted by difficult market conditions as well as inflation, energy costs, geopolitical issues, health epidemics and outbreaks of contagious diseases, such as the recent outbreak of COVID-19, unemployment and the availability and cost of credit. Our operating results will also be impacted by our available borrowing capacity.

Changes in Market Interest Rates

We own and expect to acquire or originate fixed rate mortgages (“FRMs”), and ~~adjustable rate mortgage loans (“ARMs”),~~ARMs, with maturities ranging from five to 30 years. Our loans typically have amortization periods of 15 to 30 years or balloon payments due in five to ten years. ARM loans generally have a fixed interest rate for a period of five, seven or

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With respect to our business operations, increases in interest rates, in general, may over time cause:

·

the interest expense associated with our variable-rate borrowings to increase;

·

the value of fixed-rate loans, MBS and other real estate-related assets to decline;

·

coupons on variable-rate loans and MBS to reset to higher interest rates; and

·

prepayments on loans and MBS to slow.

Conversely, decreases in interest rates, in general, may over time cause:

·

the interest expense associated with variable-rate borrowings to decrease;

·

the value of fixed-rate loans, MBS and other real estate-related assets to increase;

·

coupons on variable-rate loans and MBS to reset to lower interest rates; and

·

prepayments on loans and MBS to increase.

Additionally, non-performing loans are not as interest rate sensitive as performing loans, as earnings on non-performing loans are often generated from restructuring the assets through loss mitigation strategies and opportunistically disposing of them. Because non-performing loans are short-term assets, the discount rates used for valuation are based on short-term market interest rates, which may not move in tandem with long-term market interest rates. A rising rate environment often means an improving economy, which might have a positive impact on commercial property values, resulting in increased gains on the disposition of these assets. While rising rates could make it more costly to refinance these assets, we expect that the impact of this would be mitigated by higher property values. Moreover, small business owners are generally less interest rate sensitive than large commercial property owners, and interest cost is a relatively small component of their operating expenses. An improving economy will likely spur increased property values and sales, thereby increasing the need for loan financing.

Changes in Fair Value of Our Assets

~~Our~~Certain originated loans, mortgage backed securities, and servicing rights are carried at fair value and future ~~mortgage related~~ assets may also be carried at fair value. Accordingly, changes in the fair value of our assets may impact the results of our operations for the period in which such change in value occurs. The expectation of changes in real estate prices is a major determinant of the value of loans and ~~asset backed securities (“ABS”).~~ABS. This factor is beyond our control.

Prepayment Speeds

Prepayment speeds on loans ~~and ABS~~ vary according to interest rates, the type of investment, conditions in the financial markets, competition, foreclosures and other factors that cannot be predicted with any certainty. In general, when interest rates rise, it is relatively less attractive for borrowers to refinance their mortgage loans and, as a result, prepayment speeds tend to decrease. This can extend the period over which we earn interest income. When interest rates fall, prepayment speeds on loans, and therefore, ABS and servicing rights tend to increase, thereby decreasing the period over which we earn interest income or servicing fee income. Additionally, other factors such as the credit rating of the borrower, the rate of property value appreciation or depreciation, financial market conditions, foreclosures and lender competition, none of which can be predicted with any certainty, may affect prepayment speeds on loans.

Credit Spreads

Our investment portfolio may be subject to changes in credit spreads. Credit spreads measure the yield demanded on loans and ~~ABS.~~securities by the market based on their credit relative to a specific benchmark and is a measure of the perceived risk of the investment. Fixed rate loans and securities are valued based on a market credit spread over the rate payable on fixed rate swaps or fixed rate U.S. Treasuries of similar maturity. Floating rate securities are typically valued based on a market credit spread over LIBOR (or another floating rate index) and are affected similarly by changes in LIBOR spreads. Excessive supply of these loans and securities or reduced demand may cause the market to require a higher yield on these securities, resulting in the use of a higher, or “wider,” spread over the benchmark rate to value such assets. Under such conditions, the value of our portfolios would tend to decline. Conversely, if the spread used to value such assets were to decrease, or “tighten,” the value of our loans and securities would tend to increase. Such changes in the market value of these assets may affect our net equity, net income or cash flow directly through their impact on unrealized gains or losses.

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~~Spreads on ABS~~

Since the financial crisis that began in 2007, the spread between swap rates and ABS has been volatile. Spreads on these assets initially moved wider due to the difficult credit conditions and have only recovered a portion of that widening. As the prices of securitized assets declined, a number of investors and a number of structured investment vehicles faced margin calls from dealers and were forced to sell assets in order to reduce leverage. The price volatility of these assets also impacted lending terms in the repurchase market, as counterparties raised margin requirements to reflect the more difficult environment. The spread between the yield on our assets and our funding costs is an important factor in the performance of this aspect of our business. Wider spreads imply greater income on new asset purchases but may have a negative impact on our stated book value. Wider spreads generally negatively impact asset prices. In an environment where spreads are widening, counterparties may require additional collateral to secure borrowings which may require us to reduce leverage by selling assets. Conversely, tighter spreads imply lower income on new asset purchases but may have a positive impact on our stated book value. Tighter spreads generally have a positive impact on asset prices. In this case, we may be able to reduce the amount of collateral required to secure borrowings.

Loan and ABS Extension Risk

Waterfall ~~Asset Management, LLC (“Waterfall” or the “Manager”)~~ estimates the projected weighted-average life of our investments based on assumptions regarding the rate at which the borrowers will prepay the underlying mortgages and/or the speed at which we are able to liquidate an asset. If the timeline to resolve non-performing assets extends, this could have a negative impact on our results of operations, as carrying costs may therefore be higher than initially anticipated. This situation may also cause the fair market value of our investment to decline if real estate values decline over the extended period. In extreme situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur losses.

Credit Risk

We are subject to credit risk in connection with our investments in loans and ABS and other target assets we may acquire in the future. Increases in defaults and delinquencies will adversely impact our operating results, while declines in rates of default and delinquencies will improve our operating results from this aspect of our business. Default rates are influenced by a wide variety of factors, including, property performance, property management, supply and demand factors, construction trends, consumer behavior, regional economics, interest rates, the strength of the United States economy and other factors beyond our control. All loans are subject to the possibility of default. We seek to mitigate this risk by seeking to acquire assets at appropriate prices given anticipated and unanticipated losses and by deploying a value-driven approach to underwriting and diligence, consistent with our historical investment strategy, with a focus on projected cash flows and potential risks to cash flow. We further mitigate our risk of potential losses while managing and servicing our loans by performing various workout and loss mitigation strategies with delinquent borrowers. Nevertheless, unanticipated credit losses could occur which could adversely impact operating results.

Size of Investment Portfolio

The size of our investment portfolio, as measured by the aggregate principal balance of our loans and ABS and the other assets we own, is also a key revenue driver. Generally, as the size of our investment portfolio grows, the amount of interest income and realized gains we receive increases. A larger investment portfolio, however, drives increased expenses, as we may incur additional interest expense to finance the purchase of our assets.

~~Market Conditions~~Current market conditions

~~With the onset~~ The recent outbreak of the COVID-19 pandemic around the globe continues to adversely impact global commercial activity and has contributed to significant volatility in financial ~~crisis, SBC origination volume fell approximately 42.5% from~~markets. The impact of the ~~2006 peak through 2009~~outbreak has been rapidly evolving, with several countries taking drastic measures to limit the spread of the virus by instituting quarantines or lockdowns and imposing travel restrictions. Such actions are creating significant disruptions to global supply chains and adversely impacting several industries, including but not limited to airlines, hospitality, retail, and the ~~decline was accompanied~~broader real estate industry.

The major disruption caused by COVID-19 halted most economic activity in most of the United States resulting in a ~~reduction~~significant increase in unemployment claims and will likely result in a significant decline in the ~~principal balance~~U.S. GDP.COVID-19 could have a continued and prolonged adverse impact on economic and market conditions and trigger a period of ~~outstanding SBC loans between 2008~~global economic slowdown which could have a material adverse effect on the Company’s results and ~~2013. Based~~financial condition.

The full impact of COVID-19 on ~~publicly available data from Boxwood Means~~the real estate industry, the commercial real estate market, the small business lending market and the credit markets generally, and consequently on the Company’s financial condition and results of operations is uncertain and cannot be predicted at the current time as it depends on several factors beyond the control of the ~~first half~~Company including, but not limited to, (i) the uncertainty around the severity and duration of ~~2017, while commercial property prices have almost recovered to their 2007 peak, SBC property prices have increased only 21.5% from~~ the ~~2012 trough. We believe this trend suggests continued tight credit in SBC lending~~outbreak, (ii) the effectiveness of the United States public health response, (iii) the pandemic’s impact on the U.S. and ~~supports our belief that credit spreads in~~global economies, (iv) the SBC loan asset class should for the foreseeable future remain wider compared to large balance commercial mortgage loans. Since late 2008, we have seen substantial volumes of non-performing SBC loans available for purchase from U.S. banks at significant discounts to their UPBs. We believe that banks have been motivated to sell SBC loans in order to improve their regulatory capital ratios, reduce their troubled asset ratios, a key measure monitored by regulators, investorstiming,

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scope and effectiveness of governmental responses to the pandemic, including the PPP and other ~~stakeholders in assessing bank safety~~programs under the CARES Act, (v) the timing and soundness, relieve the strain on their operations caused by managing distressed loan books and to demonstrate to regulators, investors and other stakeholders that they are addressing their distressed asset issues and the drag they place on operating performance through controlled salesspeed of ~~these assets over time. We believe that banks will continue to be motivated to divest their non-performing SBC loan assets to address these issues over the next several years. We believe that as the~~ economic recovery, ~~continues~~(vi) the ~~volume~~availability of ~~short-term loan extensions~~a treatment or vaccination for COVID-19, and ~~restructurings will be reduced, resulting in increased opportunities for us to originate first mortgage SBC loans in~~(vii) the ~~market. We believe that the supply~~negative impact on our borrowers, real estate values and cost of ~~new capital to meet this increasing demand will continue to be constrained by the historically low activity levels in the ABS market.~~capital.

Critical Accounting Policies and Use of Estimates

See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Use of Estimates” included within the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019. There have been no material changes to our Critical Accounting Policies described in our annual report on Form 10-K filed with the ~~Company's critical~~SEC on March 12, 2020, other than a supplement to the accounting ~~policies~~policy for our current expected credit loss reserve that was adopted by the Company in the first quarter of 2020. Refer to Note 3 and ~~use~~4 of ~~estimates during~~our consolidated financial statements for further description of the ~~three or nine months ended September 30, 2017.~~accounting policy for our current expected credit loss reserve and our other significant accounting policies.

~~Third Quarter 2017 Highlights~~RESULTS OF OPERATIONS

~~Operating~~Key Financial Measures and Indicators

As a real estate finance company, we believe the key financial measures and indicators for our business are earnings per share, dividends declared per share, core earnings, and net book value per share. As further described below, core earnings is a measure that is not prepared in accordance with GAAP. We use core earnings to evaluate our performance excluding the effects of certain transactions and GAAP adjustments that we believe are not necessarily indicative of our current loan activity and operations. See “—Non-GAAP Financial Measures” below for reconciliation to core earnings.

The following table sets forth certain information on our operating results:

·

~~Achieved Net Income of $12.4 million during the three months ended September 30, 2017.~~

·

~~Earnings per share of $0.37 for the three months ended September 30, 2017.~~

·

~~Core Earnings of $12.9 million, or $0.38 per share, during the three months ended September 30, 2017.~~

·

~~Declared dividends of $0.37 per share, during the quarter ended September 30, 2017, representing a 9.4% dividend yield, based on the the closing share price on September 30, 2017.~~

~~Loan originations and acquisitions:~~

·

Loan originations totaled $808.6 million including $278.8 million in SBC loans (66% of which are floating rate), $38.9 million of SBA Section 7(a) Program loans and $490.9 million of residential loans (based on fully committed amounts).

·

~~Acquired $16.0 million of SBC loans with a weighted average coupon of 7.0%~~

·

~~Completed the securitization of $154.9 million of acquired SBC owner-occuped loans and sold $139.4 million of senior bonds at a weighted average pass-through rate of 3.3%.~~

·

Completed issuance of a Collateralized Loan Obligation (“CLO”) of $243.8 million of originated transitional loans and sold $198.8 million of senior bonds at a floating rate of LIBOR plus 139 basis points.

·

~~Robust pipeline with substantial acquisition and origination opportunities (based on fully committed amounts):~~

o

~~Acquisition pipeline of $307.0 million in SBC loans and $15.0 million in SBA loans~~

o

~~Origination pipeline of:~~

§

~~$159.7 million SBC loans~~

§

~~$114.0 million of SBA Section 7(a) Program loans~~

§

~~$193.4 million of commitments to originate residential agency loans~~


	Three Months Ended March 31,			Three Months Ended March 31,
(in thousands, except share data)	2020			2019
Net Income	$	(51,516)		$	30,450
Earnings per common share - basic	$	(0.98)		$	0.90
Earnings per common share - diluted	$	(0.98)		$	0.90
Core Earnings	$	1,225		$	11,275
Core Earnings per common share - basic and diluted	$	0.01		$	0.34
Dividends declared per common share	$	0.40		$	0.40
Dividend yield(1)		22.2	%		10.9	%
Book value per common share	$	14.55		$	17.01
Adjusted net book value per common share(2)	$	14.52		$	16.65
(1) Based on the closing share price on March 31, 2020 and 2019, respectively.
(2) Excludes the equity component of our 2017 convertible note issuance.

~~We have a large and active pipeline of potential acquisition and origination opportunities that are in various stages of~~

The following table sets forth certain information on our investment ~~process. We refer to assets as being part of our acquisition pipeline or our origination pipeline if: (i) an asset or~~ portfolio opportunity has been presented to us and we have determined, after a preliminary analysis, that the assets fit within our investment strategy and exhibit the appropriate risk/reward characteristics and (ii) in the case of acquired loans, we have executed a non-disclosure agreement (“NDA”) or an exclusivity agreement and commenced the dueactivity (based on fully committed amounts):


	Three Months Ended		Three Months Ended
(in thousands)	March 31, 2020		March 31, 2019
Loan originations
SBC loan originations	$	469,732	$	291,965
SBA loan originations		45,547		44,113
Residential agency mortgage loan originations		691,309		344,400
Total loan originations	$	1,206,588	$	680,478
Total loan acquisitions	$	51,494	$	128,700
Total loan investment activity	$	1,258,082	$	809,178

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diligence process or we have executed more definitive documentation, such as a letter of intent (“LOI”), and in the case of originated loans, we have issued a LOI, and the borrower has paid a deposit.

We operate in a competitive market for investment opportunities and competition may limit our ability to originate or acquire the potential investments in the pipeline. The consummation of any of the potential loans in the pipeline depends upon, among other things, one or more of the following: available capital and liquidity, our Manager’s allocation policy, satisfactory completion of our due diligence investigation and investment process, approval of our Manager’s Investment Committee, market conditions, our agreement with the seller on the terms and structure of such potential loan, and the execution and delivery of satisfactory transaction documentation. Historically, we have acquired less than a majority of the assets in our Manager’s pipeline at any one time and there can be no assurance the assets currently in its pipeline will be acquired or originated by our Manager in the future.

~~Quarterly Investment Allocation~~

~~The following tables set out our quarterly investment allocation for the three months ended September 30, 2017:~~

~~Three Months Ended September 30, 2017~~

~~(1) $ in thousands.~~

~~(2) Represents actual disbursements during the quarter. Loan acquisitions includes loans repurchased.~~

~~(3) Based on fully funded loan amount.~~

~~(4) Gross yield equals contractual interest rates and accretion of discount based on Sutherland’s estimates of loan performance where applicable.~~

~~(5) Weighted average advance rate of all assets of this loan type currently financed on our facilities.~~

~~(6) Weighted average debt cost of all assets of this loan type currently financed on the our facilities.~~

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The following table provides a detailed breakdown of our calculation of return on equity and core return on equity for the three months ended ~~September 30, 2017:~~March 31, 2020. Core return on equity is not a measure calculated in accordance with GAAP and is defined further within Item 7 – Non-GAAP Financial Measures in our 2019 Annual report on Form 10-K.

~~(1)~~

Levered yields for the applicable quarter ended include interest income, accretion of discount, MSR creation, realized gains (losses) on loans held for sale, unrealized gains (losses) on loans held for sale and servicing income net of interest expense and amortization of deferred financing costs on an annualized basis

~~(2)~~

~~Based on GAAP Net Income~~

~~(3)~~

~~Return on equity based on net income before tax of the Residential Mortgage Banking business line divided by the business line's equity~~

Portfolio Metrics

SBC Originations

The following table includes certain portfolio metrics related to our SBC ~~Originations segment as of September 30, 2017:~~originations segment:


~~Number of loans~~		~~368~~
~~Unpaid principal balance~~ ~~(1)~~	$	~~1,067,684~~
~~Carrying value(1)~~	$	~~1,087,694~~
~~Weighted average LTV~~		~~60%~~
~~Weighted average interest rate~~		~~6.3%~~
~~Weighted average remaining maturity~~		~~5 years~~
~~Weighted average UPB~~	$	~~2,901,314~~
~~Percentage of loans fixed/floating~~		~~64% / 36%~~
~~Percentage of loans 30+ days delinquent~~		~~0.16%~~
~~(1) $ in thousands~~

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SBA Originations, Acquisitions, and Servicing

The following table includes certain portfolio metrics related to our SBA ~~Originations, Acquisitions~~originations, acquisitions and ~~Servicing segment as of September 30, 2017:~~servicing segment:


~~Number of loans~~		~~2,194~~
~~Unpaid principal balance(1)~~	$	~~529,743~~
~~Carrying value(1)~~	$	~~471,280~~
~~Weighted average LTV~~		~~78%~~
~~Weighted average interest rate~~		~~5.9%~~
~~Weighted average remaining maturity~~		~~14 years~~
~~Weighted average UPB~~	$	~~241,451~~
~~Percentage of loans fixed/floating~~		~~1% / 99%~~
~~Percentage of loans 30+ days delinquent~~		6%
~~(1) $ in thousands~~

Acquired Portfolio

The following table includes certain portfolio metrics related to our ~~Loan Acquisitions segment as of September 30, 2017:~~acquisitions segment:


~~Number of loans~~		~~766~~
~~Unpaid principal balance(1)~~	$	~~378,151~~
~~Carrying value(1)~~	$	~~335,437~~
~~Weighted average LTV~~		~~52%~~
~~Weighted average interest rate~~		~~6.3%~~
~~Weighted average maturity~~		~~9 years~~
~~Weighted average UPB~~	$	~~493,670~~
~~Percentage of loans fixed/floating~~		~~46% / 54%~~
~~Percentage of loans performing /non-performing~~		~~93% / 7%~~
~~(1) $ in thousands.~~

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Residential Mortgage Banking

The following table includes certain portfolio metrics related to our ~~Residential Mortgage Banking segment as of September 30, 2017:~~residential mortgage banking segment:


~~Originations~~	~~Unpaid principal balance~~	~~$490.9 million~~
	~~% of Origination Purchased~~	~~78.8%~~
	~~% of Origination Refinanced~~	~~21.2%~~
	~~Channel - % Correspondent~~	~~37.7%~~
	~~Channel - % Retail~~	~~37.6%~~
	~~Channel - % Wholesale~~	~~24.7%~~
~~Sales~~	~~Unpaid principal balance~~	~~$503.9 million~~
	~~% of UPB- Fannie/ Freddie securitizations~~	~~62.0%~~
	~~% of UPB- Ginnie Mae securitizations~~	~~26.4%~~
	~~% of UPB – Other investors~~	~~11.6%~~

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~~Business Outlook~~Changes in Financial Condition

~~Our objective is~~The following table compares our consolidated balance sheets as of March 31, 2020 and December 31, 2019 (amounts in thousands):


	March 31,		December 31,		$ Change		% Change
(In Thousands)	2020		2019		Q1'20 vs. Q4'19		Q1'20 vs. Q4'19
Assets
Cash and cash equivalents	$	122,265	$	67,928	$	54,337	80.0	%
Restricted cash		93,164		51,728		41,436	80.1
Loans, net (including $19,813 and $20,212 held at fair value)		1,969,052		1,727,984		241,068	14.0
Loans, held for sale, at fair value		306,328		188,077		118,251	62.9
Mortgage backed securities, at fair value		78,540		92,466		(13,926)	(15.1)
Loans eligible for repurchase from Ginnie Mae		77,605		77,953		(348)	(0.4)
Investment in unconsolidated joint ventures		53,379		58,850		(5,471)	(9.3)
Purchased future receivables, net		49,150		43,265		5,885	13.6
Derivative instruments		17,756		2,814		14,942	531.0
Servicing rights (including $78,631 and $91,174 held at fair value)		110,111		121,969		(11,858)	(9.7)
Real estate, held for sale		48,292		58,573		(10,281)	(17.6)
Other assets		114,891		106,925		7,966	7.5
Assets of consolidated VIEs		2,229,517		2,378,486		(148,969)	(6.3)
Total Assets	$	5,270,050	$	4,977,018	$	293,032	5.9	%
Liabilities
Secured borrowings	$	1,698,937	$	1,189,392	$	509,545	42.8	%
Securitized debt obligations of consolidated VIEs, net		1,692,074		1,815,154		(123,080)	(6.8)
Convertible notes, net		111,310		111,040		270	0.2
Senior secured notes, net		179,387		179,289		98	0.1
Corporate debt, net		150,074		149,986		88	0.1
Guaranteed loan financing		457,032		485,461		(28,429)	(5.9)
Liabilities for loans eligible for repurchase from Ginnie Mae		77,605		77,953		(348)	(0.4)
Derivative instruments		16,585		5,250		11,335	215.9
Dividends payable		21,747		21,302		445	2.1
Accounts payable and other accrued liabilities		89,740		97,407		(7,667)	(7.9)
Total Liabilities	$	4,494,491	$	4,132,234	$	362,257	8.8	%
Stockholders’ Equity
Common stock	$	5	$	5	$	—	0.0	%
Additional paid-in capital		837,064		822,837		14,227	1.7
Retained earnings (deficit)		(69,605)		8,746		(78,351)	(895.8)
Accumulated other comprehensive (loss)		(9,536)		(6,176)		(3,360)	54.4
Total Ready Capital Corporation equity		757,928		825,412		(67,484)	(8.2)	%
Non-controlling interests		17,631		19,372		(1,741)	(9.0)
Total Stockholders’ Equity	$	775,559	$	844,784	$	(69,225)	(8.2)	%
Total Liabilities and Stockholders’ Equity	$	5,270,050	$	4,977,018	$	293,032	5.9	%

Comparison of balances at March 31, 2020 to ~~provide attractive risk-adjusted returns to our stockholders,~~December 31, 2019

Assets

Cash and cash equivalents increased $54.3 million, primarily through dividends and secondarily through capital appreciation. In order to achieve this objective, we will continue to grow our investment portfolio by originating new SBC, SBA, and residential mortgage loans, acquiring SBC and SBA loans from third parties and growing our SBA and residential servicing portfolio. We intend to finance these assets in a manner that is designed to deliver attractive returns across a variety of market conditions and economic cycles. Our ability to execute our business strategy is dependent upon many factors, including our ability to access capital and financing on favorable terms. While there can be no assurance we will continue to have accessdue to the ~~equity~~focus on the preservation of liquidity, reduction in loan origination volumes and ~~debt markets, we will continue to pursue these and other available market opportunities as a means to increase our liquidity and capital base. If we were to experience a prolonged downturn~~curtailment of loan acquisitions in ~~the credit markets, it could cause us to seek alternative sources of potentially less attractive financing, and may require us to adjust our business plan accordingly.~~March 2020.

~~Our business is affected~~Loans, net increased by the macroeconomic conditions in the United States, including economic growth, unemployment rates, the political climate, interest rate levels and expectations. The recent economic environment has resulted in continued improvement in commercial real estate values which has generally increased payoffs and reduced credit exposure in our loan portfolios. Interest rates have risen recently$241.1 million as a result of ~~improved labor markets, personal income growth~~new loan originations and ~~business investment. We believe~~acquisitions during January and February of 2020.

Loans, held for sale, at fair value, increased by $118.3 million as a ~~modest~~result of an increase in loan originations in our residential agency mortgage segment.

MBS decreased by $13.9 million as a result of credit spread widening during the quarter and reduction in MBS prices.

Derivatives assets increased by $14.9 million as a result of an increase in interest rates is unlikely to deter most borrowers who enjoy low loan coupons and still-rising property incomes. Recent surveys indicate that banks remain optimistic about loan demand going forward even as they may be heading into a credit tightening cycle at this stage of market expansion. We believe that this environment should support loan origination volumesrate lock commitments in ~~2017 and going forward.~~

~~ZAIS Merger~~

~~On October 31, 2016, we became a publicly traded company through~~ our merger with and into a subsidiary of ZAIS, with ZAIS surviving the merger and changing its name to Sutherland Asset Management Corporation. We were designated as the accounting acquirer because of our larger pre-merger size relative to ZAIS, the relative voting interests of our stockholders after consummation of the merger, and our senior management and board continuing on after the consummation of the merger. Because we were designated as the accounting acquirer, our historical financial statements (and not those of ZAIS) are the historical financial statements following the consummation of the merger and are included in this quarterly report on Form 10-Q.

~~Investment Activity~~

~~The following describes our investment activity based on actual cash disbursements during the periods indicated:~~

~~Investment Activity for the Three Months Ended September 30, 2017 and September 30, 2016~~

~~The following describes our investment activity based on actual cash disbursements:~~

~~Loan Acquisitions~~

~~During the current quarter:~~

·

~~Acquired $16.0 million of SBC loans and made advances of $5.0 million on loans originated in previous quarters.~~

·

~~Received proceeds from liquidations and principal payments on MBS of $3.2 million and loans of $101.9 million.~~

~~During the prior year quarter:~~

·

~~Acquired $25.8 million of SBC loans.~~

·

~~Received proceeds from liquidations and principal payments on loans of $180.6 million.~~

~~SBC Loan Originations~~residential agency mortgage segment.

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~~During~~Servicing rights decreased by $11.9 million as a result of a decrease in interest rates during the ~~current quarter:~~

·

~~Originated $126.9 million~~quarter, resulting in a fair value markdown in ~~Freddie Mac program loans, $85.3 million in transitional loans, and $36.2 million in SBC conventional loans, which includes additional funding on loans originated in previous quarters.~~

·

~~Received proceeds from liquidations and principal payments on loans of $129.2 million.~~

~~During~~ the ~~prior year quarter:~~

·

~~Originated $23.0 million in Freddie Mac program loans, $6.0 million in conventional loans, and $7.0 million in transitional loans.~~

·

~~Received proceeds from liquidations and principal payments on loans of $140.8 million.~~

~~SBA Loan Originations~~residential MSRs carried at fair value.

~~During~~Real estate acquired in settlement of loans, held for sale decreased $10.3 million as a result of sales of real estate acquired as part of the ~~current quarter:~~

·

~~Originated $41.3 million in SBA loans, which includes additional funding on loans originated in previous quarters.~~

·

~~Received proceeds from liquidations and principal payments on loans of $39.1 million, including $32.9 million of secondary market loan sales with an average sale premium of 11.9%.~~

~~During~~ORM merger and REO impairment charges during the ~~prior year quarter:~~

·

~~Originated $15.0 million in SBA loans.~~

·

~~Received proceeds from liquidations and principal payments on loans of $20.3 million.~~

~~Residential Mortgage Loan Originations~~

·

~~Originated $490.9 million in residential agency loans and $11.3 million in other residential loans, including additional funding on loans originated in previous quarters.~~

·

~~Repurchased $0.3 million in residential loans previously originated and sold.~~

·

~~Received proceeds from liquidations and principal payments on loans of $534.9 million, including proceeds from sales of $503.9 million.~~

~~Investment Activity for the Nine Months Ended September 30, 2017 and September 30, 2016~~quarter.

~~Loan Acquisitions.~~Assets in consolidated VIEs decreased by $149.0 million due to pay-downs on existing loans within securitizations. No assets were securitized during the first quarter of 2020.

~~During the current year period:~~

·

~~Acquired $14.4 million of MBS and $88.3 million of SBC loans~~

·

~~Received proceeds from liquidations and principal payments on loans of $236.0 million.~~

~~During the prior year period:~~

·

~~Acquired $17.3 million of MBS and $89.0 million of SBC loans~~

·

~~Received proceeds from liquidations and principal payments on loans of $212.0 million.~~

·

~~Received proceeds from sale and principal payment on MBS of $197.1 million~~

~~SBC Loan Originations~~Liabilities

~~During~~Secured borrowings associated with our repurchase agreements and credit facilities increased by $509.5 million due to an increased need of shorter-term financings on acquired and originated loans, resulting in increased leverage, particularly on acquired transitional loans. In addition, no assets were securitized during the ~~current year period:~~

·

Originated $283.8 million in Freddie Mac program loans, $190.9 million in transitional loans, and $119.8 million in SBC conventional loans, which includes additional funding on loans originated in previous quarters.

·

~~Received proceeds from liquidations and principal payments on loans of $298.3 million.~~

~~During the prior year period:~~

·

~~Originated $86.0 million in Freddie loans, $33.0 million in conventional loans, and $20.0 million in transitional loans.~~

·

~~Received proceeds from liquidations and principal payments on loans of $182.6 million.~~

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Results of Operations

The following table compares our summarized results of operations for ~~each of our four operating segments for~~ the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 (amounts in thousands):



	Three Months Ended March 31,				$ Change
	2020		2019		2020 vs. 2019
Interest income
Loan acquisitions	$	16,494	$	10,674	$	5,820
SBC originations		39,269		28,188		11,081
SBA originations, acquisitions and servicing		12,471		9,109		3,362
Residential mortgage banking		1,317		782		535
Total interest income	$	69,551	$	48,753	$	20,798
Interest expense
Loan acquisitions	$	(11,205)	$	(7,705)	$	(3,500)
SBC originations		(25,627)		(20,666)		(4,961)
SBA originations, acquisitions and servicing		(8,513)		(6,490)		(2,023)
Residential mortgage banking		(1,585)		(914)		(671)
Total interest expense	$	(46,930)	$	(35,775)	$	(11,155)
Net interest income before provision for loan losses	$	22,621	$	12,978	$	9,643
Loan acquisitions	$	(5,722)	$	(133)	$	(5,589)
SBC originations		(29,828)		41		(29,869)
SBA originations, acquisitions and servicing		(4,254)		(426)		(3,828)
Residential mortgage banking		-		-		-
Provision for loan losses	$	(39,804)	$	(518)		(39,286)
Net interest income after provision for loan losses	$	(17,183)	$	12,460	$	(29,643)
Non-interest income
Loan acquisitions	$	(7,525)	$	2,930	$	(10,455)
SBC originations		(1,027)		5,572		(6,599)
SBA originations, acquisitions and servicing		4,549		4,245		304
Residential mortgage banking		26,427		12,776		13,651
Corporate - other		99		30,743		(30,644)
Total non-interest income	$	22,523	$	56,266	$	(33,743)
Non-interest expense
Loan acquisitions	$	(10,803)	$	(1,478)	$	(9,325)
SBC originations		(8,085)		(5,893)		(2,192)
SBA originations, acquisitions and servicing		(6,093)		(4,862)		(1,231)
Residential mortgage banking		(33,200)		(17,820)		(15,380)
Corporate - other		(6,612)		(11,226)		4,614
Total non-interest expense	$	(64,793)	$	(41,279)	$	(23,514)
Net income (loss) before provision for income taxes
Loan acquisitions	$	(18,761)	$	4,288	$	(23,049)
SBC originations		(25,298)		7,242		(32,540)
SBA originations, acquisitions and servicing		(1,840)		1,576		(3,416)
Residential mortgage banking		(7,041)		(5,176)		(1,865)
Corporate - other		(6,513)		19,517		(26,030)
Total net income (loss) before provision for income taxes	$	(59,453)	$	27,447	$	(86,900)

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The following table presents the components of realized and unrealized gains (losses) on financial instruments:

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Provision for loan losses

Provision for loan losses of $5.7 million for the quarter ended March 31, 2020 in our loan acquisitions segment represented an increase of $5.6 million from the prior year quarter. The increase in the ~~current~~provision for loan losses during the three months ended March 31, 2020 of $5.6 million compared to the January 1, 2020 cumulative-effect adjustment upon the adoption of ASU 2016-13 of $1.6 million is primarily attributed to the significant adverse change in the economic outlook due to the COVID-19 pandemic.

Non-interest income (loss)

Non-interest loss of $7.5 million for the quarter ~~decreased $2.9~~ended March 31, 2020 in our loan acquisitions segment represented a decrease of $10.5 million from the prior year quarter, primarily driven by a ~~reduction~~decrease in ~~interest income generated by our acquired loan portfolio due to a lower average carrying value of the portfolio as a result of re-deploying capital to our origination businesses.~~

Interest income of $28.2 million in the current year period decreased $10.3 million from the prior year period primarily driven by a reduction in interest income generated by our acquired loan portfolio due to a lower average carrying value of the portfolio as a result of redeploying capital to our origination businesses. The reduction was also a result of sales of MBS during the second half of 2016, resulting in reduction in interest income generated on ~~these assets.~~our unconsolidated joint ventures of $6.5 million and an increase in unrealized losses on derivatives of $3.1 million.

~~Interest~~Non-interest expense

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(1) The exposure reflects the difference between (a) the amount loaned to the Company through repurchase agreements and credit facilities, including interest payable, and (b) the cash and the fair value of the assets pledged by the Company as collateral, including accrued interest receivable on such assets

The following table presents information with respect to any counterparty for repurchase agreements for which our Company had greater than 5% of stockholders’ equity at risk in the aggregate at ~~September 30, 2017:~~March 31, 2020:


(in thousands)		Counterparty Rating (1)	Amount of Risk (2)	Weighted Average Months to Maturity for Agreement	Percentage of Stockholders’ Equity			Counterparty Rating (1)	Amount of Risk (2)	Weighted Average Months to Maturity for Agreement	Percentage of Stockholders’ Equity
JPMorgan Chase Bank, N.A.		A+ / Aa3	$ 50,647	3	9.1	%		A+ / Aa2	$ 158,211	2	20.4	%
Citibank, N.A.								A+ / Aa3	$ 79,920	7	10.3	%
Deutsche Bank AG		A- / Baa2	$ 42,753	5	7.7	%		BBB+ / A3	$ 145,444	21	18.8	%
(1) The counterparty rating presented is the long-term issuer credit rating as rated at September 30, 2017 by S&P and Moody’s, respectively.
(1) The counterparty rating presented is the long-term issuer credit rating as rated at March 31, 2020 by S&P and Moody’s, respectively.							(1) The counterparty rating presented is the long-term issuer credit rating as rated at March 31, 2020 by S&P and Moody’s, respectively.
(2) The amount at risk reflects the difference between (a) the amount loaned to the Company through repurchase agreements, including interest payable, and (b) the cash and the fair value of the assets pledged by the Company as collateral, including accrued interest receivable on such securities	(2) The amount at risk reflects the difference between (a) the amount loaned to the Company through repurchase agreements, including interest payable, and (b) the cash and the fair value of the assets pledged by the Company as collateral, including accrued interest receivable on such securities						(2) The amount at risk reflects the difference between (a) the amount loaned to the Company through repurchase agreements, including interest payable, and (b) the cash and the fair value of the assets pledged by the Company as collateral, including accrued interest receivable on such securities

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The Company, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of ~~September 30, 2017.~~March 31, 2020. Based on the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective.

Changes in Internal Controls over Financial Reporting

There have been no changes in the Company’s “internal control over financial reporting” (as defined in Rule 13a‑15(f) of the Exchange Act) that occurred during the three months ended ~~September 30, 2017~~March 31, 2020 that have materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company may be involved in various claims and legal actions in the ordinary course of business. See “Liquidity and Capital Resources – GMFS Settlement Agreement” in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this quarterly report on Form 10-Q for a discussion relating to the tolling agreement executed by GMFS and the related settlement agreement reached on April 25, 2017.

Currently, no ~~other~~ material legal proceedings are pending or, to our knowledge, threatened against us.

Item 1A. Risk Factors

See the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016. There~~2019. The following risk factors are added to the Company’s risk factors previously disclosed. You should be aware that these risk factors and other information may not describe every risk facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

The current outbreak of COVID-19 has caused severe disruptions in the U.S. and global economy and to our business, and may have an adverse impact on our performance, financial condition and results of operations.

The recent outbreak of COVID-19 in many countries continues to adversely impact global economic activity and has contributed to significant volatility in financial markets. On March 11, 2020, the World Health Organization publicly characterized COVID-19 as a pandemic. On March 13, 2020, the President of the United States declared the COVID-19 outbreak a national emergency. The global impact of the outbreak has been rapidly evolving, and as cases of the virus increased around the world, governments and organizations have implemented a variety of actions to mobilize efforts to mitigate the ongoing and expected impact. Many governments have reacted by instituting quarantines, restrictions on travel, school closures, bans on public events and on public gatherings, “shelter in place” or “stay at home” rules, restrictions on types of business that may continue to operate, and/or restrictions on types of construction projects that may continue. Although, in certain cases, exceptions may be available for certain essential operations and businesses, and in other cases certain of these restrictions are beginning to be eased, there is no assurance that such exceptions or easing of restrictions will enable us to avoid adverse effects to our results of operations and business. Further, such actions have created, and expect to continue to create, disruption in real estate financing transactions and the commercial real estate market and adversely impact a number of industries, including many small businesses throughout the United States. The outbreak could have a continued adverse impact on economic and market conditions and continue to cause regional, national and global economic slowdowns and potentially trigger recessions in any or all of these areas.

In the United States, there have been a number of federal, state and local government initiatives applicable to a significant number of mortgage loans, to manage the spread of the virus and its impact on the economy, financial markets and continuity of businesses of all sizes and industries. On March 27, 2020, the U.S. Congress approved, and President Trump signed into law, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act provides approximately $2 trillion in financial assistance to individuals and businesses resulting from the outbreak of COVID-19. The CARES Act, among other things, provides certain measures to support individuals and businesses in maintaining solvency through monetary relief, including in the form of financing and loan forgiveness and/or forbearance. Although this action by the federal government, together with other actions taken at the federal, regional and local levels, are intended to support these economies, there is no ~~material changes~~guarantee that such measures will provide sufficient relief to avoid continued adverse effects on the economy and potentially a recession. Similar actions have been taken by governments around the globe but as is the case in the United States there is no assurance that such measures will prevent further economic disruptions, which may be significant, around the world.

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We believe that both our and our Manager’s ability to operate, our level of business activity and the profitability of our business, as well as the values of, and the cash flows from, the assets we own have been, and will continue to be, impacted by the effects of COVID-19 and could in the future be impacted by another pandemic or other major public health issues. While we have implemented risk management and contingency plans and taken preventive measures and other precautions, no predictions of specific scenarios can be made with respect to the ~~Company's~~COVID-19 pandemic and such measures may not adequately predict the impact on our business from such events.

The effects of COVID-19 have adversely impacted the value of our assets, our business, financial condition and results of operations and cash flows, and both our and our Manager’s ability to operate successfully. Some of the factors that impacted us to date and may continue to affect us include the following:

·

to the extent the value of commercial real estate declines, which would also likely negatively impact the value of the loans we own, we could become subject to additional margin calls under our repurchase agreements;

·

our ability to continue to satisfy any additional margin calls from our lenders and to the extent we are unable to satisfy any such margin calls, any acceleration of our indebtedness, increase in the interest rate on advanced funds, termination of our ability to borrow funds from them, or foreclosure by our lenders on our assets;

·

difficulty accessing debt and equity capital on attractive terms, or at all;

·

a severe disruption and instability in the financial markets or deteriorations in credit and financing conditions may jeopardize the solvency and financial wherewithal of counterparties with whom we do business, including our borrowers and could affect our or our counterparties’ ability to make regular payments of principal and interest (whether due to an inability to make such payments, an unwillingness to make such payments, or a waiver of the requirement to make such payments on a timely basis or at all) and our ability to recover the full value of our loan, thus reducing our earnings and liquidity;

·

unavailability of information, resulting in restricted access to key inputs used to derive certain estimates and assumptions made in connection with evaluating our loans for impairments and establishing allowances for loan losses;

·

our ability to remain in compliance with the financial covenants under our borrowings, including in the event of impairments in the value of the loans we own;

·

disruptions to the efficient function of our operations because of, among other factors, any inability to access short-term or long-term financing for the loans we make;

·

our need to sell assets, including at a loss;

·

to the extent we elect or are forced to reduce our loan origination activities;

·

inability of other third-party vendors we rely on to conduct our business to operate effectively and continue to support our business and operations, including vendors that provide IT services, legal and accounting services, or other operational support services;

·

effects of legal and regulatory responses to concerns about the COVID-19 pandemic and related public health issues, which could result in additional regulation or restrictions affecting the conduct of our business; and

·

our ability to ensure operational continuity in the event our business continuity plan is not effective or ineffectually implemented or deployed during a disruption.

The rapid development and fluidity of the circumstances resulting from this pandemic precludes any prediction as to the ultimate adverse impact of COVID-19. There are no comparable recent events which provide guidance as to the effect of the spread of COVID-19 and a pandemic on our business. Nevertheless, COVID-19 and the current financial, economic and capital markets environment, and future developments in these and other areas present material uncertainty and risk with respect to our performance, financial condition, volume of business, results of operations and cash flows. Moreover, many risk factors ~~during~~set forth in our Annual Report on Form 10-K for the ~~three~~year ended December 31, 2019 should be interpreted as heightened risks as a result of the impact of the COVID-19 pandemic.

Holders of our common stock may not receive distributions or may receive them on a delayed basis and distributions may not be declared or paid or distributions may decrease over time. Distributions may be paid in shares of common stock, cash or a combination of shares of common stock and cash. Changes in the amount and timing of distributions we pay or in the tax characterization of distributions we pay may adversely affect the market price of our common stock or may result in holders of our common stock being taxed on distributions at a higher rate than initially expected.

Our distributions are driven by a variety of factors, including our minimum distribution requirements under the REIT tax laws and our REIT taxable income (including certain items of non-cash income) as calculated pursuant to the Code.

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We are generally required to distribute to our stockholders at least 90% of our REIT taxable income, although our reported financial results for GAAP purposes may differ materially from our REIT taxable income.

In the year ended December 31, 2019, we paid $63.3 million of cash distributions on our common stock, representing cumulative distributions of $1.60 per share. On March 11, 2020, the Company's Board of Directors declared a quarterly cash dividend of $0.40 per share of common stock. On March 20, 2020, the Company announced that the dividend would be paid in a combination of cash and common stock on April 30, 2020 to common stockholders of record as of the close of business of March 31, 2020, which resulted in the issuance of approximately 2.7 million shares of common stock on April 30, 2020.

We continue to prudently evaluate our liquidity and review the ability and advisability of paying distributions in the future in light of our financial condition and the applicable minimum distribution requirements under applicable REIT tax laws and regulations. Our ability to continue to pay quarterly distributions in 2020 may be adversely affected by a number of factors, including the risk factors described in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2019. Further, we continue to monitor our cash balances and cash flows and may consider paying future distributions in shares of common stock, cash, or ~~nine months ended September 30, 2017.~~a combination of shares of common stock and cash. Any decision regarding the composition of such distributions will be made following an analysis and review of our liquidity, including our cash balances and cash flows, at the time of payment of the distribution. For example, we may determine to distribute shares of common stock in lieu of cash, or in combination with cash, in respect of our distribution obligations, which, among other things, could result in dilution to existing stockholders.

To the extent we determine that future distributions would represent a return of capital to investors or would not be required under applicable REIT tax laws and regulations, rather than the distribution of income, we may determine to discontinue distribution payments until such time that distributions would again represent a distribution of income or be required under applicable REIT tax laws and regulations. Any reduction or elimination of our payment of distributions would not only reduce the amount of distributions you would receive as a holder of our common stock, but could also have the effect of reducing the market price of our common stock and our ability to raise capital in future securities offerings.

In addition, the rate at which holders of our common stock are taxed on distributions we pay and the characterization of our distribution — be it ordinary income, capital gains, or a return of capital — could have an impact on the market price of our common stock. After we announce the expected characterization of distributions we have paid, the actual characterization (and, therefore, the rate at which holders of our common stock are taxed on the distributions they have received) could vary from our expectations, including due to errors, changes made in the course of preparing our corporate tax returns, or changes made in response to an audit by the Internal Revenue Service, or the IRS, with the result that holders of our common stock could incur greater income tax liabilities than expected.

We may pay taxable distributions in our common stock and cash, in which case stockholders may sell shares of our common stock to pay tax on such distributions, placing downward pressure on the market price of our common stock.

We may satisfy the REIT 90% distribution test with taxable distributions of our common stock. The IRS has issued Revenue Procedure 2017-45 authorizing elective cash/stock distributions to be made by "publicly offered REITs." Pursuant to Revenue Procedure 2017-45, the IRS will treat the distribution of stock pursuant to an elective cash/stock distribution as a distribution of property under Section 301 of the Code (i.e., a distribution), as long as at least 20% of the total distribution is available in cash and certain other parameters detailed in the Revenue Procedure are satisfied.

If we make a taxable distribution payable in cash and common stock, taxable stockholders receiving such distributions will be required to include the full amount of the distribution as ordinary income to the extent of our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. As a result, stockholders may be required to pay income tax with respect to such distributions in excess of the cash distributions received. If a U.S. stockholder sells the common stock that it receives as a distribution in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the distribution, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. federal income tax with respect to such distributions, including in respect of all or a portion of such distribution that is payable in common stock. If we make a taxable distribution payable in cash and our common stock and a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on distributions, it may put downward pressure on the trading price of our common stock.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.


~~Exhibit No.~~
Exhibit number		Exhibit description
2.1	**	Agreement and Plan of Merger, dated as of April 6, 2016, by and among ZAIS Financial Corp., ZAIS Financial Partners, L.P., ZAIS Merger Sub, LLC, Sutherland Asset Management Corporation and Sutherland Partners, L.P. (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K filed April 7, 2016)

2.2	**	Amendment No. 1 to the Agreement and Plan of Merger, dated as of May 9, 2016, by and among ZAIS Financial Corp., ZAIS Financial Partners, L.P., ZAIS Merger Sub, LLC, Sutherland Asset Management Corporation and Sutherland Partners, L.P. (incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K filed May 9, 2016)

2.3	**	Amendment No. 2 to the Agreement and Plan of Merger, dated as of August 4, 2016, by and among ZAIS Financial Corp., ZAIS Financial Partners, L.P., ZAIS Merger Sub, LLC, Sutherland Asset Management Corporation and Sutherland Partners, L.P. (incorporated by reference to Exhibit 2.3 of the Registrant's Current Report on Form 8-K filed November 4, 2016)

2.4	*	Agreement and Plan of Merger, by and among Ready Capital Corporation, ReadyCap Merger Sub LLC and Owens Realty Mortgage, Inc., dated as of November 7, 2018 (incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K filed November 9, 2018)

3.1	**	Articles of Amendment and Restatement of ZAIS Financial Corp. (incorporated by reference to Exhibit 3.1 of the Registrant’s Form S-11, as amended (Registration No. 333-185938)

3.2	**	Articles Supplementary of ZAIS Financial Corp. (incorporated by reference to Exhibit 3.2 of the Registrant’s Form S-11, as amended (Registration No. 333-185938)

3.3	**	Articles of Amendment and Restatement of Sutherland Asset Management Corporation (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed November 4, 2016)

3.4	*	~~3.4~~Articles of Amendment of Ready Capital Corporation (incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed on September 26, 2018)

3.5	**	Amended and Restated Bylaws of ~~ZAIS Financial Corp. (incorporated by reference to Exhibit 3.3 of the Registrant’s Annual Report on Form 10-K filed on March 13, 2014)~~
~~3.5~~**	~~Amended and Restated Bylaws of Sutherland Asset Management~~Ready Capital Corporation (incorporated by reference to Exhibit ~~3.5 of~~3.2 to the ~~Registrant's Annual Report on~~Registrant’s Form ~~10-K~~8-K filed on ~~March 15, 2017)~~September 26, 2018)

4.1	**	Specimen Common Stock Certificate of ~~Sutherland Asset Management~~Ready Capital Corporation (incorporated by reference to Exhibit 4.1 ofto the ~~Registrant's Annual Report on~~Registrant’s Form ~~10-K~~S-4 filed on ~~March 15, 2017)~~December 13, 2018)

99

Table of Contents

4.2	**	Indenture, dated February 13, 2017, by and among ReadyCap Holdings, LLC, as issuer, Sutherland Asset Management Corporation, Sutherland Partners, L.P., Sutherland Asset I, LLC and ReadyCap Commercial, LLC, each as guarantors, and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K filed February 13, 2017)

4.3	**	First Supplemental Indenture, dated February 13, 2017, by and among ReadyCap Holdings, LLC, as issuer, Sutherland Asset Management Corporation, Sutherland Partners, L.P., Sutherland Asset I, LLC, ReadyCap Commercial, LLC, each as guarantors and U.S. Bank National Association, as trustee and as collateral agent, including the form of 7.5% Senior Secured Notes due 2022 and the related guarantees (incorporated by reference to Exhibit 4.2 of the Registrant's Current Report on Form 8-K filed February 13, 2017)

4.4	**	Indenture, dated as of August 9, 2017, by and between Sutherland Asset Management Corporation and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 of the Registrant's Current Report on Form 8-K filed August 9, 2017)

4.5	**	First Supplemental Indenture, dated as of August 9, 2017, by and between Sutherland Asset Management Corporation and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.3 of the Registrant's Current Report on Form 8-K filed August 9, 2017)


Maryland	90‑0729143
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)


	Three Months Ended March 31,
(In Thousands)		2020		2019
Net Income (loss)	$	(51,516)	$	30,450
Other comprehensive income (loss) - net change by component
Net change in hedging derivatives (cash flow hedges)	$	(3,128)	$	(420)
Foreign currency translation adjustment		(304)		—
Other comprehensive loss	$	(3,432)	$	(420)
Comprehensive income (loss)	$	(54,948)	$	30,030
Comprehensive income (loss) attributable to non-controlling interests		(1,136)		969
Comprehensive income (loss) attributable to Ready Capital Corporation	$	(53,812)	$	29,061


	Nine Months Ended September 30,
(In Thousands)	2017		2016
Cash Flows From Operating Activities:
Net income	$	33,084	$	27,332
Less: Loss from discontinued operations		—		(351)
Net income from continuing operations		33,084		27,683
Adjustments to reconcile net income to net cash provided (used in) operating activities:
Discount accretion and premium amortization of financial instruments, net		(7,372)		(14,656)
Amortization of guaranteed loan financing, deferred financing costs, and intangible assets		15,266		14,749
Provision for loan losses		1,857		4,689
Charge off of real estate acquired in settlement of loans		746		912
Decrease in repair and denial reserve		(289)		(1,222)
Purchase of short-term investments and trading securities		(839,425)		(749,805)
Proceeds from sale of short-term investments and trading securities		1,059,821		749,995
Net settlement of derivative instruments		(1,085)		(1,428)
Purchase of loans, held for sale, at fair value		(11,195)		—
Origination of loans, held for sale, at fair value		(1,882,626)		(200,574)
Proceeds from disposition and principal payments of loans, held for sale, at fair value		1,943,508		190,674
Gain on sale of mortgages held for sale included in Gains on residential mortgage banking activities, net of variable loan expenses		(49,806)		—
Loss on derivatives included in Gains on residential mortgage banking activities, net of variable loan expenses		2,043		—
Creation of new mortgage servicing rights, net of payoffs		(11,392)		—
Net realized gains on financial instruments		(13,151)		(3,720)
Net unrealized losses on financial instruments		(4,933)		(5,800)
Net changes in operating assets and liabilities
Assets of consolidated VIEs (excluding loans, net) , accrued interest and due from servicers		10,607		2,918
Receivable from third parties		464		801
Other assets		12,293		(8,179)
Accounts payable and other accrued liabilities		(10,210)		6,524
Net cash provided by operating activities		248,205		13,561
Net cash used in operating activities of discontinued operations		—		(3,190)
Cash Flow From Investing Activities:
Origination of loans		(347,988)		(215,204)
Purchase of loans		(78,317)		(89,011)
Purchase of mortgage backed securities, at fair value		(14,448)		(17,388)
Payment of liability under participation agreements		(642)		(1,155)
Proceeds from disposition and principal payment of loans		303,304		330,006
Proceeds from sale and principal payment of mortgage backed securities, at fair value		7,415		197,147
Proceeds from sale of real estate		1,775		4,724
Decrease in restricted cash		(12,234)		(720)
Net cash (used in) provided by investing activities		(141,135)		208,399
Cash Flows From Financing Activities:
Proceeds from secured short-term borrowings		3,692,370		4,194,488
Proceeds from issuance of securitized debt obligations of consolidated VIEs		241,359		—
Proceeds from promissory note		—		9,164
Proceeds from senior secured note offering		141,917		—
Proceeds from convertible note issuance		115,000		—
Payment of secured short-term borrowings		(4,097,065)		(4,204,158)
Payment of securitized debt obligations of consolidated VIEs		(50,265)		(88,966)
Payment of guaranteed loan financing		(87,140)		(94,471)
Payment of promissory note		(884)		(124)
Payment of deferred financing costs		(15,263)		(1,050)
Payment of offering costs		(70)		—
Dividend payments		(35,971)		(36,764)
Distributions		(34)		—
Net cash used in financing activities		(96,046)		(221,881)
Net increase (decrease) in cash and cash equivalents		11,024		(3,111)
Cash and cash equivalents at beginning of period		59,566		41,569
Cash and cash equivalents at end of period	$	70,590	$	38,458

Supplemental disclosure of operating cash flow
Cash paid for interest	$	46,760	$	38,667
Cash paid for income taxes	$	2,503	$	5,918
Stock-based compensation	$	509	$	—

Supplemental disclosure of non-cash investing activities
Loans transferred from Loans, held at fair value to Loans, held-for-investment	$	40,905	$	—
Loans transferred from Loans, net to Loans, held for sale, at fair value	$	5,940	$	11,350

Supplemental disclosure of non-cash financing activities
Shares issued in exchange of litigation settlement	$	4,000	$	—
Incentive shares issued	$	—	$	482
Dividend reinvestment in common stock	$	—	$	1,807
Dividend reinvestment in operating partnership units	$	—	$	359


	Three Months Ended March 31,
(In Thousands, except share information)	2020		2019
Cash Flows From Operating Activities:
Net income (loss)	$	(51,516)	$	30,450
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Amortization of premiums, discounts, and debt issuance costs, net		9,366		7,975
Provision for loan losses		39,804		518
Impairment loss on real estate, held for sale		2,969		305
Change in repair and denial reserve		(136)		89
Net settlement of derivative instruments		(8,818)		(795)
Origination of loans, held for sale, at fair value		(881,549)		(445,455)
Proceeds from disposition and principal payments of loans, held for sale, at fair value		793,428		458,503
Realized gains, net		(40,538)		(20,126)
Unrealized losses, net		33,488		6,912
Gain on bargain purchase		—		(30,728)
Equity in net loss (income) of unconsolidated joint ventures, net of distributions		3,537		(2,707)
Purchased future receivables, net of payoffs		(12,802)		—
Allowance for doubtful accounts on purchased future receivables		6,917		—
Net changes in operating assets and liabilities
Assets of consolidated VIEs (excluding loans, net), accrued interest and due from servicers		17,764		2,406
Receivable from third parties		674		8,170
Other assets		(8,646)		(7,814)
Accounts payable and other accrued liabilities		(3,954)		(6,647)
Net cash (used in) provided by operating activities		(100,012)		1,056
Cash Flow From Investing Activities:
Origination of loans		(328,509)		(245,367)
Purchase of loans		(52,067)		(128,991)
Purchase of mortgage backed securities, at fair value		(1,576)		—
Funding of unconsolidated joint ventures		(1,644)		—
Proceeds on unconsolidated joint venture in excess of earnings recognized		3,578		5,739
Proceeds from disposition and principal payment of loans		222,868		183,800
Proceeds from sale and principal payment of mortgage backed securities, at fair value		5,031		3,277
Proceeds from sale of real estate		7,851		285
Cash acquired in connection with the ORM Merger		—		10,822
Net cash (used in) investing activities		(144,468)		(170,435)
Cash Flows From Financing Activities:
Proceeds from secured borrowings		1,866,732		951,342
Payment of secured borrowings		(1,356,573)		(950,377)
Proceeds from issuance of securitized debt obligations of consolidated VIEs		—		355,846
Payment of securitized debt obligations of consolidated VIEs		(125,468)		(118,893)
Payment of guaranteed loan financing		(34,672)		(20,526)
Payment of deferred financing costs		(1,602)		(7,538)
Equity issuance, net of offering costs		13,372		—
Payment of contingent consideration		—		(1,207)
Distributions from non-controlling interests, net		—		(20)
Dividend payments		(21,302)		(13,346)
Net cash (used in) provided by financing activities		340,487		195,281
Net increase (decrease) in cash, cash equivalents, and restricted cash		96,007		25,902
Cash, cash equivalents, and restricted cash at beginning of period		127,980		94,970
Cash, cash equivalents, and restricted cash at end of period	$	223,987	$	120,872

Supplemental disclosure of operating cash flow
Cash paid for interest	$	44,576	$	34,471
Cash (received) paid for income taxes	$	—	$	(3,125)
Stock-based compensation	$	894	$	733
Supplemental disclosure of non-cash investing activities
Loans transferred from Loans, held for sale, at fair value to Loans, net	$	509	$	—
Deconsolidation of assets in securitization trusts	$	—	$	177,815
Supplemental disclosure of non-cash financing activities
Common stock issued in connection with merger transactions	$	—	$	179,321
Deconsolidation of borrowings in securitization trusts	$	—	$	177,815
Share-based component of incentive fees	$	53	$	233

Cash and restricted cash reconciliation
Cash and cash equivalents	$	122,265	$	47,597
Restricted cash		93,164		29,979
Cash, cash equivalents, and restricted cash in Assets of consolidated VIEs		8,558		43,296
Cash, cash equivalents, and restricted cash at end of period	$	223,987	$	120,872


~~Standard~~	~~Summary of guidance~~		~~Effects on financial statements~~
~~ASU 2014-09, Revenue from Contracts with Customers (Topic 606)~~		Outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.		~~Required effective date: Annual reporting periods beginning after December 15, 2017.~~
~~Issued May 2014~~		~~The standard clarifies the required factors that an entity must consider when recognizing revenue and also requires additional disclosures.~~		Since the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other U.S. GAAP, the Company does not expect the new revenue recognition guidance to have a material impact on the elements of its unaudited interim consolidated statements of income most closely associated with financial instruments, including interest income, gains and losses on financial instruments, gains on residential mortgage banking activities, and servicing income.
		~~May be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption.~~		The Company has evaluated the impact of this standard and we do not anticipate that the adoption will have a material impact on our unaudited interim consolidated financial statements. To the extent an adjustment is warranted, we will adjust for the cumulative effect recognized as of the date of adoption.
~~ASU~~ 2016-13, Financial Instruments—Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments		~~Requires the use~~Replaces existing incurred loss impairment guidance and establishes a single allowance framework for financial assets carried at amortized cost, which will reflect management's estimate of ~~an “expected loss” credit model for estimating future~~ credit losses ~~of certain financial instruments instead~~over the full remaining expected life of the ~~“incurred loss” credit model that existing GAAP currently requires.~~financial assets and will consider expected future changes in macroeconomic conditions.		~~Required effective date: Annual reporting periods, and interim periods therein, beginning after December 15, 2019. Early adoption is permitted for periods beginning after December 15, 2018.~~Adopted January 1, 2020.
Issued June 2016		~~The “expected loss” model~~Eliminates existing guidance for PCI loans, and requires recognition of the ~~consideration of possible~~accretable difference as an increase to the allowance for expected credit losses ~~over the life of an instrument compared to only estimating credit losses upon the occurrence of a discrete loss event in accordance with the current “incurred loss” methodology.~~		~~The Company is evaluating the impact ASU 2016-13 will have~~ on ~~our unaudited interim consolidated financial statements.~~
~~ASU 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments~~		~~Provides guidance on the disclosure and classification of certain items within the statement of cash flows, including beneficial interests obtained in a securitization of~~ financial assets ~~debt prepayment or extinguishment costs, and distributions received from equity-method investees.~~		~~Required effective date: Annual reporting periods, and interim periods therein, beginning after December 15, 2017.~~
~~Issued August 2016~~		~~Required to be applied retrospectively to all periods presented beginning~~purchased with more than insignificant credit deterioration since origination, with a corresponding increase in the ~~year~~recorded investment of ~~adoption.~~related loans.		The Company ~~is evaluating~~adopted ASU 2016-13 using the ~~impact this standard will have on~~modified retrospective method for all loans carried at amortized cost. We recorded a $6.8 million cumulative-effect adjustment to the opening retained earnings (net of taxes) in our consolidated statement of ~~cash flows.~~equity as of January 1, 2020. The Company's total increase in the allowance for loan losses was $11.1 million, which included a $3.6 million allowance for loan loss balance sheet gross up, relating to purchased credit deteriorated loans.
~~ASU 2016-16, Income Taxes (Topic 740) – Intra-Entity Transfers of Assets Other Than Inventory~~		Requires ~~that an entity recognize~~inclusion of expected recoveries, limited to the ~~income tax consequences~~cumulative amount of ~~intra-entity transfers of~~prior write-offs, when estimating the allowance for credit losses for in scope financial assets ~~other than inventory at the time~~(including collateral dependent assets).	
		Requires a cumulative-effect adjustment to retained earnings as of the ~~transfer instead~~beginning of ~~deferring~~ the ~~tax consequences until~~reporting period of adoption.	
ASU 2017-4, Intangibles — Goodwill and Other (Topic 350) – Simplifying the ~~asset has been sold to an outside party, as current GAAP requires.~~Test for Goodwill Impairment		~~Required effective date: Annual~~Requires an impairment loss to be recognized when the estimated fair value of a reporting ~~periods, and interim periods therein, beginning after December 15, 2017. Early adoption is permitted.~~unit falls below its carrying value.		Adopted January 1, 2020.
Issued ~~October 2016~~January 2017		Eliminates the second condition in the current guidance that requires an impairment loss to be recognized only if the estimated implied fair value of the goodwill is below its carrying value.		Based on current impairment test results, the adoption did not have a material effect on the consolidated financial statements.
				The ~~Company is evaluating~~guidance may result in more frequent goodwill impairment losses in future periods due to the ~~impact this standard will have on our unaudited interim consolidated financial statements.~~removal of the second condition.
ASU ~~2016-18, Statement of Cash Flows~~2018-13, Fair Value Measurement (Topic ~~230) - Restricted Cash~~		Requires that restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.		~~Required effective date: Annual reporting periods, and interim periods therein, beginning after December 15, 2017. Early adoption is permitted.~~
~~Issued November 2016~~				~~The Company is evaluating the impact this standard will have on our unaudited interim consolidated financial statements.~~
~~ASU 2017-01, Business Combinations (Topic 805) – Clarifying the Definition of a Business~~		Amends the definition of a business to exclude acquisitions of groups of assets where substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.		~~Required effective date: Annual reporting periods, and interim periods therein, beginning after December 15, 2017. Early adoption is permitted.~~


PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
Item 1A.	Forward-Looking Statements	65 60
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	65 62
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	94 92
Item 4.	Controls and Procedures	97 95
PART II.	OTHER INFORMATION	98 96
Item 1.	Legal Proceedings	98 96
Item 1A.	Risk Factors	98 96
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	98 99
Item 3.	Defaults Upon Senior Securities	98 99
Item 4.	Mine Safety Disclosures	98 99
Item 5.	Other Information	98 99
Item 6.	Exhibits	99
SIGNATURES		~~101~~ 102
EXHIBIT 31.1 CERTIFICATIONS
EXHIBIT 31.2 CERTIFICATIONS
EXHIBIT 32.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 10 U.S.C. SECTION 1350
EXHIBIT 32.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, 10 U.S.C. SECTION 1350


									Retained		Total Sutherland
	Common Stock			Preferred Stock			Additional Paid-		Earnings		Asset Management		Non-controlling		Total Stockholders'
(in thousands, except share data)	Shares	Par Value		Shares	Par Value		In Capital		(Deficit)		Corporation equity		Interests		Equity
Balance at January 1, 2016	25,739,847	$	2	125	$	125	$	447,093	$	(5,899)	$	441,321	$	38,892	$	480,213
Dividend declared on common stock ($0.90 per share)	—		—	—		—		—		(23,484)		(23,484)		—		(23,484)
Dividend reinvestment in common stock	103,440		1	—		—		1,806		—		1,807		—		1,807
Incentive shares issued	27,199		—	—		—		482		—		482		—		482
Dividend declared on preferred stock	—		—	—		—		—		(8)		(8)		—		(8)
Dividend declared on OP units	—		—	—		—		—		—		—		(2,072)		(2,072)
Dividend reinvestment in OP units	—		—	—		—		—		—		—		359		359
Net Income	—		—	—		—		—		25,115		25,115		2,217		27,332
Balance at September 30, 2016	25,870,486	$	3	125	$	125	$	449,381	$	(4,276)	$	445,233	$	39,396	$	484,629


	Three Months Ended March 31, 2019
						Retained			Accumulated Other	Total
	Common Stock			Additional Paid-		Earnings			Comprehensive	Ready Capital		Non-controlling		Total Stockholders'
(in thousands, except share data)	Shares	Par Value		In Capital		(Deficit)			Loss	Corporation Equity		Interests		Equity
Balance at January 1, 2019	32,105,112	$	3	$	540,478	$	5,272	$	(922)	$	544,831	$	19,244	$	564,075
Dividend declared on common stock ($0.40 per share)	—		—		—		(12,949)		—		(12,949)		—		(12,949)
Dividend declared on OP units	—		—		—		—		—		—		(447)		(447)
Shares issued pursuant to merger transactions	12,223,552		1		179,320		—		—		179,321		—		179,321
Equity component of 2017 convertible note issuance	—		—		(84)		—		—		(84)		—		(84)
Distributions, net	—		—		—		—		—		—		(20)		(20)
Stock-based compensation	52,110		—		733		—		—		733		—		733
Manager incentive fee paid in stock	14,939		—		233		—		—		233		(3)		230
Net income	—		—		—		29,467		—		29,467		983		30,450
Other comprehensive loss	—		—		—		—		(406)		(406)		(14)		(420)
Balance at March 31, 2019	44,395,713	$	4	$	720,680	$	21,790	$	(1,328)	$	741,146	$	19,743	$	760,889


		For the three months ended		For the nine months ended
(In Thousands)		September 30, 2016		September 30, 2016
Selected Financial Data
Interest income	$	34,945	$	112,712
Interest expense		(17,074)		(50,393)
Provision for loan losses		(488)		(4,689)
Non-interest income (expense)		(8,977)		(29,282)
Realized gain (loss)		2,161		2,767
Unrealized gain (loss)		6,644		(5,559)
Net income from continuing operations before income taxes	$	17,211	$	25,556



Geographic Concentration (Unpaid Principal Balance)	September 30, 2017		December 31, 2016
Geographic Concentration (% of Unpaid Principal Balance)					March 31, 2020		December 31, 2019
California	13.7	%	13.6	%	17.7	%	16.9	%
Texas	12.4		14.0		15.2		15.2
New York					8.4		8.3
Florida	11.3		9.9		8.1		8.3
New York	7.2		6.9
Illinois					5.3		5.2
Georgia	6.1		5.9		4.6		4.8
Arizona	5.2		5.2		3.4		3.4
North Carolina	3.8		3.7		3.2		3.2
Ohio	2.9		2.9
Virginia	2.7		2.9
Pennsylvania	2.0		2.9
Washington					2.9		2.8
Colorado					2.6		2.8
Other	32.7		32.1		28.6		29.1
Total	100.0	%	100.0	%	100.0	%	100.0	%


	September 30, 2017
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses
General	$	487	$	-	$	1,072	$	251	$	638	$	2,448
Specific		2		-		919		1,622		27		2,570
PCI		-		-		5,971		1,735		-		7,706
Ending balance	$	489	$		$	7,962	$	3,608	$	665	$	12,724


	Three months ended September 30, 2017												Three Months Ended March 31, 2020
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses		Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses
Beginning balance	$	313	$	105	$	8,328	$	4,648	$	381	$	13,775	$	304	$	188	$	3,054	$	2,114	$	1,781	$	7,441
Provision for (Recoveries of) loan losses		176		(105)		825		(714)		284		466
Cumulative-effect adjustment upon adoption of ASU 2016-13														2,400		1,906		1,878		3,562		1,379		11,125
Provision for (recoveries of) loan losses														7,658		22,170		5,722		12		4,242		39,804
Charge-offs and sales		-		-		(254)		(186)		-		(440)		-		-		(8)		(131)		(329)		(468)
Recoveries		-		-		(937)		(140)		-		(1,077)		-		-		-		65		1		66
Ending balance	$	489	$	-	$	7,962	$	3,608	$	665	$	12,724	$	10,362	$	24,264	$	10,646	$	5,622	$	7,074	$	57,968


	Three months ended September 30, 2016												Three Months Ended March 31, 2019
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses		Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses
Beginning balance	$	-	$	-	$	9,953	$	5,741	$	-	$	15,694	$	11	$	353	$	5,052	$	2,318	$	586	$	8,320
Provision for (Recoveries of) loan losses		-		-		(153)		227		414		488
Provision for (recoveries of) loan losses														(11)		(131)		235		271		154		518
Charge-offs and sales		-		-		9		(358)		-		(349)		-		-		-		(329)		-		(329)
Recoveries		-		-		(853)		1		-		(852)		-		-		(246)		14		-		(232)
Ending balance	$	-	$	-	$	8,956	$	5,611	$	414	$	14,981	$	-	$	222	$	5,041	$	2,274	$	740	$	8,277


	Nine months ended September 30, 2017
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses
Beginning balance	$	762	$	21	$	10,171	$	5,004	$	172	$	16,130
Provision for (Recoveries of) loan losses		(273)		(21)		1,997		(339)		493		1,857
Charge-offs and sales		-		-		(914)		(1,598)		-		(2,512)
Recoveries		-		-		(3,292)		541		-		(2,751)
Ending balance	$	489	$	-	$	7,962	$	3,608	$	665	$	12,724


	Nine months ended September 30, 2016
(In Thousands)	Originated SBC loans		Originated Transitional loans		Acquired loans		Acquired SBA 7(a) loans		Originated SBA 7(a) loans		Total Allowance for loan losses
Beginning balance	$	-	$	-	$	10,967	$	6,155	$	-	$	17,122
Provision for (Recoveries of) loan losses		-		-		3,369		906		414		4,689
Charge-offs and sales		-		-		(876)		(1,451)		-		(2,327)
Recoveries		-		-		(4,504)		1		-		(4,503)
Ending balance	$	-	$	-	$	8,956	$	5,611	$	414	$	14,981


	Nine Months Ended September 30, 2017						Nine Months Ended September 30, 2016
(In Thousands, except number of loans)	SBC		SBA		Total		SBC		SBA		Total
Number of loans permanently modified		11		34		45		12		51		63
Pre-modification recorded balance (a)	$	3,070	$	3,650	$	6,720	$	2,339	$	6,309	$	8,648
Post-modification recorded balance (a)		2,593		3,685		6,278		2,362		6,299		8,661

Number of loans that remain in default as of September 30, 2017 (b)		7		14		21		2		62		64
Balance of loans that remain in default as of September 30, 2017 (b)	$	1,364	$	1,369	$	2,733	$	118	$	5,377	$	5,495

Concession granted (a):
Term extension	$	17	$	2,772	$	2,789	$	1,135	$	4,998	$	6,133
Interest rate reduction		157		5		162		-		38		38
Principal reduction		775		167		942		-		93		93
Foreclosure		930		498		1,428		311		550		861
Total	$	1,879	$	3,442	$	5,321	$	1,446	$	5,679	$	7,125
(a) Represents carrying value.
(b) Represents the September 30, 2017 carrying values of the TDRs that occurred during the nine months ended September 30, 2017 and 2016 that remained in default as of September 30, 2017. Generally, all loans modified in a TDR are placed or remain on non-accrual status at the time of the restructuring. However, certain accruing loans modified in a TDR that are current at the time of restructuring may remain on accrual status if payment in full under the restructured terms is expected. For purposes of this schedule, a loan is considered in default if it is 30 or more days past due.


	September 30, 2017				December 31, 2016
	Non-PCI		PCI		Non-PCI		PCI
(In Thousands)	Loans		Loans		Loans		Loans
Unpaid principal balance	$	1,599,354	$	128,720	$	1,536,245	$	172,298
Non-accretable discount		—		(8,838)		—		(24,784)
Accretable discount		(43,633)		(24,010)		(55,563)		(26,978)
Loans, held-for-investment		1,555,721		95,872		1,480,682		120,536
Allowance for loan losses		(5,018)		(7,706)		(5,677)		(10,453)
Loans, held-for-investment	$	1,550,703	$	88,166	$	1,475,005	$	110,083


(In Thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash held in money market funds	$	632	$	—	$	—	$	632
Short term investments		99,994		—		—		99,994
Loans, held for sale, at fair value		—		107,631		92,687		200,318	$	—	$	310,345	$	—	$	310,345
Loans, held at fair value		—		—		158,393		158,393
Loans, net, at fair value										—		—		19,813		19,813
Mortgage backed securities, at fair value		—		—		41,371		41,371		—		78,437		103		78,540
Derivative instruments, at fair value		—		1,562		2,569		4,131		—		506		17,250		17,756
Residential mortgage servicing rights, at fair value		—		—		68,815		68,815		—		—		78,631		78,631
Total assets	$	100,626	$	109,193	$	363,835	$	573,654	$	—	$	389,288	$	115,797	$	505,085

Liabilities:
Derivative instruments, at fair value	$	—	$	358	$	—	$	358	$	—	$	16,585	$	—	$	16,585
Contingent consideration		—		—		9,037		9,037
Total liabilities	$	—	$	358	$	9,037	$	9,395	$	—	$	16,585	$	—	$	16,585


		September 30, 2017						December 31, 2016
		Range of input values				Weighted Average		Range of input values				Weighted Average
Residential mortgage servicing rights (at fair value)
	• Forward prepayment rate	7.3	-	28.0	%	8.7	%	6.9	-	11.7	%	9.3	%
	• Discount rate	10.5	-	13.0	%	10.9	%	10.5	-	11.5	%	10.8	%
	• Servicing expense	0.7	-	0.8	%	0.7	%	0.4	-	1.7	%	0.5	%


					Pledged Assets Carrying Value at				Carrying Value of Borrowing at
(in 000s)	Maturity	Pricing	Facility Size		September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016
Borrowings under credit facilities
JPMorgan - Commercial (1)	June 2018	L+ 3.25 to 3.50%	$	250,000	$	43,407	$	226,253	$	30,960	$	190,066
Keybank - Commercial (2)	September 2018	L + 1.75%		100,000		78,872		17,311		76,753		17,162
Comerica - Residential (3)	March 2018	L + 2.125%		150,000		65,460		35,102		61,332		33,575
UBS - Residential loans (3)	November 2017	L + 2.30%		65,000		—		43,121		—		39,750
Associated Bank - Residential loans (3)	August 2018	L + 2.25%		40,000		15,446		28,575		14,345		27,869
Origin Bank - Residential loans (3)	May 2018	L + 2.25%		40,000		20,191		18,910		19,006		18,188
Total borrowings under credit facilities (9)			$	645,000	$	223,376	$	369,272	$	202,396	$	326,610
Borrowings under repurchase agreements
Deutsche Bank- Commercial (4)	February 2018	L + 2.50 to 3.50%	$	275,000	$	119,707	$	118,962	$	76,954	$	82,716
JPMorgan - Commercial (5)	December 2017	L + 2.50 to 4.50%		250,000		77,343		93,691		44,883		52,169
Citibank - Commercial (6)	June 2018	L + 2.25% to 3.00%		200,000		59,911		119,376		49,778		102,576
JPMorgan - MBS (7)	November 2017	2.56 to 3.94%		36,331		54,518		42,253		36,331		30,363
Citibank - MBS (7)	November 2017	3.37%		5,957		11,496		11,496		5,957		5,226
Bank of America - MBS (7)	January 2018	3.38 - 3.48%		8,112		9,630		11,815		6,568		8,112
Mizuho - STI (8)	N/A	N/A		99,950		—		100,000		—		99,950
Societe Generale - STI (8)	N/A	N/A		19,940		—		19,994		—		19,940
RBC - STI (8)	October 2017	1.50%		199,800		99,994		199,990		99,900		199,800
Total borrowings under repurchase agreements (10)			$	1,095,090	$	432,599	$	717,577	$	320,371	$	600,852
Total secured short-term borrowings			$	1,740,090	$	655,975	$	1,086,849	$	522,767	$	927,462

Promissory note payable
FCB - Commercial	June 2021	2.75%	$	9,164	$	8,233	$	9,144	$	6,494	$	7,378
Total promissory note payable			$	9,164	$	8,233	$	9,144	$	6,494	$	7,378


			Gross		Assets
			Amounts		Presented in		Gross Amounts Not Offset in the Consolidated
	Gross		Offset in the		the		Balance Sheets (1)
	Amounts of		Consolidated		Consolidated				Cash
	Recognized		Balance		Balance		Financial		Collateral
(In Thousands)	Assets		Sheets		Sheets		Instruments		Received		Net Amount
Interest rate swaps	$	1,562	$	—	$	1,562	$	—	$	1,562	$	—
Total	$	1,562	$	—	$	1,562	$	—	$	1,562	$	—


	Three Months Ended September 30, 2017				Nine Months Ended September 30, 2017
			Net Change in				Net Change in
	Net Realized		Unrealized		Net Realized		Unrealized
(In Thousands)	Gain (Loss)		Gain (Loss)		Gain (Loss)		Gain (Loss)
Credit default swaps (1)	$	—	$	(150)	$	(230)	$	(227)
Interest rate swaps (1)		(742)		870		(855)		901
Residential mortgage banking activities interest rate swaps (2)		—		(53)		—		(1,922)
Interest rate lock commitments (IRLCs) (2)		—		(149)		—		(121)
Total	$	(742)	$	518	$	(1,085)	$	(1,369)
(1) Gains (losses) are recorded in net unrealized gain (loss) on financial instruments or net realized gain (loss) on financial instruments in the consolidated statements of income. (2) Gains (losses) are recorded in gains on residential mortgage banking activities, net of variable loan expenses, in the consolidated statements of income.


	Three Months Ended September 30, 2016				Nine Months Ended September 30, 2016
			Net Change in				Net Change in
	Net Realized		Unrealized		Net Realized		Unrealized
(In Thousands)	Gain (Loss)		Gain (Loss)		Gain (Loss)		Gain (Loss)
Credit default swaps (1)	$	—	$	(195)	$	—	$	(360)
Interest rate swaps (1)		(347)		1,004		(1,476)		(1,868)
Total	$	(347)	$	809	$	(1,476)	$	(2,228)
(1) Gains (losses) are recorded in net unrealized gain (loss) on financial instruments or net realized gain (loss) on financial instruments in the unaudited interim consolidated statements of income.


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2017		2016		2017		2016
Management fee - total	$	2.0 million	$	1.8 million	$	6.0 million	$	5.5 million
Management fee - amount unpaid	$	2.0 million	$	2.5 million	$	2.0 million	$	2.5 million


	Independent Director RSUs						Employee RSAs
(In Thousands, except share data)	Number of shares		Weighted-average grant date fair value		Weighted-average grant date fair value (per share)		Number of shares		Weighted-average grant date fair value		Weighted-average grant date fair value (per share)
Outstanding, January 1		—	$	—	$	—		—	$	—	$	—
Granted		40,000		580		14.50		—		—		—
Vested		(25,000)		(363)		14.50		—		—		—
Forfeited		—		—		—		—		—		—
Canceled		—		—		—		—		—		—
Outstanding, March 31, 2017		15,000	$	217	$	14.50		—	$	—	$	—
Granted		—		—		—		25,851		380		14.70
Vested		(5,000)		(72)		14.50		—		—		—
Forfeited		—		—		—		—		—		—
Canceled		—		—		—		—		—		—
Outstanding, June 30, 2017		10,000	$	145	$	14.50		25,851	$	380	$	14.70
Granted		—		—		—		—		—		14.70
Vested		(5,000)		(72)		14.50		—		—		—
Forfeited		—		—		—		—		—		—
Canceled		—		—		—		—		—		—
Outstanding, September 30, 2017		5,000	$	73	$	14.50		25,851	$	380	$	14.70


							Gross amounts not offset in the Consolidated Balance Sheets(1)
(in thousands)	Gross amounts of recognized Assets / Liabilities		Gross amounts offset in the Consolidated Balance Sheets		Amounts presented in the Consolidated Balance Sheets		Financial Instruments		Cash Collateral Received / Paid
March 31, 2020
Assets
Derivative instruments - Credit default swaps	$	260	$	—	$	260	$	—	$	—
Derivative instruments - FX forwards		235		—		235		—		—
Total	$	495	$	—	$	495	$	—	$	—
Liabilities
Derivative instruments - Interest rate swaps	$	25,017	$	8,432	$	16,585	$	—	$	11,656
Secured borrowings		1,698,937		—		1,698,937		1,698,937		—
Total	$	1,723,954	$	8,432	$	1,715,522	$	1,698,937	$	11,656
December 31, 2019
Assets
Derivative instruments - Interest rate swaps	$	2,814	$	—	$	2,814	$	—	$	2,814
Total	$	2,814	$	—	$	2,814	$	—	$	2,814
Liabilities
Derivative instruments - Interest rate swaps	$	4,890	$	—	$	4,890	$	—	$	4,890
Derivative instruments - Credit default swaps		110		—		110		—		110


Statements of Income	Three Months Ended March 31, 2020				Three Months Ended March 31, 2019
(In Thousands)		Girod HoldCo, LLC		WFLLA, LLC		Girod HoldCo, LLC		WFLLA, LLC
Interest income	$	381	$	190	$	1,157	$	577
Realized gains		149		74		201		100
Unrealized gain (loss)		(1,987)		(992)		11,278		5,628
Servicing expense and other		(1,588)		(794)		(898)		(447)
Income (loss) before provision for income taxes	$	(3,045)	$	(1,522)	$	11,738	$	5,858


Investment Type		Average Carrying Value(1)	Gross Yield(2)		Average Debt Balance	Debt. Cost(3)	Levered Yield(4)
Acquired portfolio	$	364,724	7.7%	$	280,852	5.7%	14.5%
SBC conventional origination portfolio		1,078,514	7.7%		831,906	4.9%	17.1%
SBA Originations, Acquisitions & Servicing		499,970	10.1%		383,761	4.0%	30.5%
Total	$	1,943,208	8.3%	$	1,496,519	4.8%	20.1%
(1) Average carrying value includes average quarterly carrying value of loan and servicing asset balances.
(2) Gross yields are based on interest income, MSR creation, realized and unrealized gains (losses) on loans, held for sale, and net servicing income for the applicable quarter ended on an annualized basis, which reflects contractual interest rates and accretion of discounts based on our estimates of loan performance, including the amount, timing and present value of cash flows, prepayment rates and loss severities. Premiums and discounts associated with the loans at the time of purchase are amortized into interest income over the life of such loans using the effective yield method. Subsequent increases or decreases in the fair value of estimated cash flows will result in an adjustment to a loan's gross yield.
(3) We finance the assets included in the Investment Type through securitizations, repurchase agreements, warehouse facilities, bank credit facilities, and other corporate debt. Interest expense is calculated based on interest expense and deferred financing amortization for the applicable quarter ended on an annualized basis
(4) Levered yields for the applicable quarter ended include interest income, accretion of discount, MSR creation, realized and unrealized gains (losses) on loans, held for sale, and servicing income net of interest expense and amortization of deferred financing costs on an annualized basis


~~Returns~~	~~3Q 2017~~
~~Return on Equity(1)~~	~~8.9%~~
~~Core Return on Equity(2)~~	~~9.3%~~
~~Dividend Yield(3)~~	~~9.4%~~

~~(1) Return on equity is an annualized percentage equal to quarterly net income over the average monthly total stockholders’ equity for the period.~~
(2) Core return on equity is an annualized percentage equal to core earnings over the average monthly total stockholders’ equity for the period. Refer to “Non-GAAP Financial Measures” included in this quarterly report on Form 10-Q for a reconciliation of GAAP Net Income to Core Earnings.
~~(3) Dividend yield for the period based on September 29, 2017 share price of $15.70 as applicable.~~


	For the Three Months Ended						For the Nine Months Ended
	September 30,				$ Change		September 30,				$ Change
	2017		2016		2017 vs. 2016		2017		2016		2017 vs. 2016
Interest income
Loan acquisitions	$	7,800	$	10,679	$	(2,879)	$	28,242	$	38,492	$	(10,250)
SBC originations		17,258		11,010		6,248		41,972		29,801		12,171
SBA originations, acquisitions and servicing		9,039		10,201		(1,162)		28,935		35,989		(7,054)
Residential mortgage banking		941		-		941		3,020		-		3,020
Total interest income		35,038		31,890		3,148		102,169		104,282		(2,113)
Interest expense
Loan acquisitions		(3,937)		(4,398)		461		(12,472)		(13,235)		763
SBC originations		(10,252)		(5,152)		(5,100)		(23,798)		(14,998)		(8,800)
SBA originations, acquisitions and servicing		(3,795)		(4,199)		404		(12,120)		(13,309)		1,189
Residential mortgage banking		(797)		-		(797)		(2,310)		-		(2,310)
Corporate - other		(1,127)		(348)		(779)		(2,879)		(501)		(2,378)
Total interest expense		(19,908)		(14,097)		(5,811)		(53,579)		(42,043)		(11,536)
Net interest income before provision for loan losses		15,130		17,793		(2,663)		48,590		62,239		(13,649)
Provision for loan losses		(466)		(488)		22		(1,857)		(4,689)		2,832
Net interest income after provision for loan losses		14,664		17,305		(2,641)		46,733		57,550		(10,817)
Non-interest income
Loan acquisitions		406		500		(94)		806		819		(13)
SBC originations		1,127		1,717		(590)		2,511		3,532		(1,021)
SBA originations, acquisitions and servicing		2,000		1,173		827		4,304		5,404		(1,100)
Residential mortgage banking (1)		15,189		-		15,189		45,097		-		45,097
Total non-interest income		18,722		3,390		15,332		52,718		9,755		42,963
Non-interest expense
Loan acquisitions		(2,802)		(2,420)		(382)		(6,581)		(7,458)		877
SBC originations		(5,736)		(4,640)		(1,096)		(15,033)		(13,923)		(1,110)
SBA originations, acquisitions and servicing		(4,617)		(4,625)		8		(10,548)		(12,608)		2,060
Residential mortgage banking		(12,388)		-		(12,388)		(37,221)		-		(37,221)
Corporate - other		(4,182)		(4,159)		(23)		(13,305)		(11,827)		(1,478)
Total non-interest expense		(29,725)		(15,844)		(13,881)		(82,688)		(45,816)		(36,872)
Net realized gains (losses) on financial instruments
Loan acquisitions		(377)		595		(972)		(106)		(1,473)		1,367
SBC originations		2,768		339		2,429		6,082		1,687		4,395
SBA originations, acquisitions and servicing		3,304		1,489		1,815		6,714		3,426		3,288
Residential mortgage banking (2)		-		-		-		-		-		-
Corporate - other		-		31		(31)		461		80		381
Total net realized gains (losses) on financial instruments		5,695		2,454		3,241		13,151		3,720		9,431
Net unrealized gains (losses) on financial instruments
Loan acquisitions		173		284		(111)		1,647		3,955		(2,308)
SBC originations		3,807		3,158		649		6,671		1,727		4,944

SBA originations, acquisitions and servicing	414	-	414	625	-	625
Residential mortgage banking	(1,728)	-		(3,953)	-	(3,953)
Corporate - other	12	115	(103)	(57)	118	(175)
Total net unrealized gains (losses) on financial instruments	2,678	3,557	849	4,933	5,800	(867)
Net income (loss) before income tax provisions
Loan acquisitions	200	5,393	(5,193)	9,749	17,730	(7,981)
SBC originations	9,140	6,432	2,708	18,489	7,826	10,663
SBA originations, acquisitions and servicing	6,774	3,404	3,370	17,756	17,583	173
Residential mortgage banking	1,217	-	1,217	4,633	-	4,633
Corporate - other	(5,297)	(4,361)	(936)	(15,780)	(12,130)	(3,650)
Total net income before income tax provisions	12,034	10,868	1,166	34,847	31,009	3,838
Provisions for income taxes	340	(1,297)	1,637	(1,763)	(3,326)	1,563
Net income from continuing operations	12,374	9,571	2,803	33,084	27,683	5,401
Loss from discontinued operations, net of tax	-	-	-	-	(351)	351
Net income	12,374	9,571	2,803	33,084	27,332	5,752
(1) Includes gains on sales of mortgage loans held for sale, net of direct loan expenses, changes in fair value on IRLCs, loan expenses, certain loan origination fee income, and income generated on new mortgage servicing rights.
(2) Realized gains (losses) on residential loans held for sale at fair value are included within "Gains on residential mortgage banking activities, net of variable loan expenses" on the Consolidated statements of Income and within "Other non-interest income" for purposes of the table above.


	Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	2017		2016		Change		2017		2016		Change
Net Income	$	12.4	$	9.6	$	2.8	$	33.2	$	27.3	$	5.9
Reconciling items:
Unrealized (gain) loss on MBS		(0.2)		(0.7)		0.5		(1.4)		(4.3)		2.9
Realized (gain) loss on MBS		-		-		-		-		3.6		(3.6)
Unrealized (gain) loss on MSRs		1.7		-		1.7		4.5		-		4.5
Merger transaction costs		-		0.9		(0.9)		0.1		2.6		(2.5)
Employee severance		-		0.3		(0.3)		-		0.3		(0.3)
Restricted Stock Unit (RSU) grant to Independent Directors		-		-		-		0.3		-		0.3
Loss on discontinued operations		-		-		-		-		0.6		(0.6)
Total reconciling items	$	1.5	$	0.5	$	1.0	$	3.5	$	2.8	$	0.7
Income tax adjustments		(1.0)		-		(1.0)		(1.7)		(0.3)		(1.4)
Core earnings	$	12.9	$	10.1	$	2.8	$	35.0	$	29.8	$	5.2


Quarter End	Quarter End Balance		Average Balance in Quarter		Highest Month End Balance in Quarter
Q2 2017	$	520,169	$	576,560	$	520,169
Q3 2017		320,371		420,270		433,183
Q4 2017		382,612		351,492		382,612
Q1 2018		446,663		414,638		446,663
Q2 2018		443,263		444,963		447,751
Q3 2018		610,251		526,757		610,251
Q4 2018		635,233		622,742		635,233
Q1 2019		597,963		604,107		635,233
Q2 2019		612,383		605,173		612,383
Q3 2019		876,163		744,273		876,163
Q4 2019		809,189		842,676		876,163
Q1 2020		1,159,357		984,273		1,159,357


Deal Name	Collateral Asset Class	Issuance	Active / Collapsed	Bonds Issued (in $ millions)
Trusts (Firm sponsored)
Waterfall Victoria Mortgage Trust 2011-1 (SBC1)	SBC Acquired loans	February 2011	Collapsed	$	40.5
Waterfall Victoria Mortgage Trust 2011-3 (SBC3)	SBC Acquired loans	October 2011	Collapsed		143.4
Sutherland Commercial Mortgage Trust 2015-4 (SBC4)	SBC Acquired loans	August 2015	Collapsed		125.4
Sutherland Commercial Mortgage Trust 2018 (SBC7)	SBC Acquired loans	November 2018	Active		217.0
ReadyCap Lending Small Business Trust 2015-1 (RCLT 2015-1)	Acquired SBA 7(a) loans	June 2015	Collapsed		189.5
ReadyCap Lending Small Business Loan Trust 2019-2 (RCLT 2019-2)	Originated SBA 7(a) loans, Acquired SBA 7(a) loans	December 2019	Active		131.0

Real Estate Mortgage Investment Conduits (REMICs)
ReadyCap Commercial Mortgage Trust 2014-1 (RCMT 2014-1)	SBC Originated conventional	September 2014	Active	$	181.7
ReadyCap Commercial Mortgage Trust 2015-2 (RCMT 2015-2)	SBC Originated conventional	November 2015	Active		218.8
ReadyCap Commercial Mortgage Trust 2016-3 (RCMT 2016-3)	SBC Originated conventional	November 2016	Active		162.1
ReadyCap Commercial Mortgage Trust 2018-4 (RCMT 2018-4)	SBC Originated conventional	March 2018	Active		165.0
Ready Capital Mortgage Trust 2019-5 (RCMT 2019-5)	SBC Originated conventional	January 2019	Active		355.8
Ready Capital Mortgage Trust 2019-6 (RCMT 2019-6)	SBC Originated conventional	November 2019	Active		430.7
Waterfall Victoria Mortgage Trust 2011-2 (SBC2)	SBC Acquired loans	March 2011	Active		97.6
Sutherland Commercial Mortgage Trust 2018 (SBC6)	SBC Acquired loans	August 2017	Active		139.4
Sutherland Commercial Mortgage Trust 2019 (SBC8)	SBC Acquired loans	June 2019	Active		306.5

Collateralized Loan Obligations (CLOs)
Ready Capital Mortgage Financing 2017– FL1	SBC Originated transitional	August 2017	Collapsed	$	198.8
Ready Capital Mortgage Financing 2018 – FL2	SBC Originated transitional	June 2018	Active		217.1
Ready Capital Mortgage Financing 2019 – FL3	SBC Originated transitional	April 2019	Active		320.2

Trusts (Non-firm sponsored)
Freddie Mac Small Balance Mortgage Trust 2016-SB11	Originated agency multi-family	January 2016	Active	$	110.0
Freddie Mac Small Balance Mortgage Trust 2016-SB18	Originated agency multi-family	July 2016	Active		118.0
Freddie Mac Small Balance Mortgage Trust 2017-SB33	Originated agency multi-family	June 2017	Active		197.9
Freddie Mac Small Balance Mortgage Trust 2018-SB45	Originated agency multi-family	January 2018	Active		362.0
Freddie Mac Small Balance Mortgage Trust 2018-SB52	Originated agency multi-family	September 2018	Active		505.0
Freddie Mac Small Balance Mortgage Trust 2018-SB56	Originated agency multi-family	December 2018	Active		507.3


		12-month pretax net interest income sensitivity profiles
		Instantaneous change in rates
(in thousands)		25 basis point increase		50 basis point increase		75 basis point increase		100 basis point increase		25 basis point decrease		50 basis point decrease		75 basis point decrease		100 basis point decrease
Assets:
Acquired loans	$	511	$	1,022	$	1,534	$	2,051	$	(281)	$	(566)	$	(839)	$	(1,109)
Originated SBC loans		38		76		114		151		(38)		(76)		(113)		(140)
Originated Transitional loans		773		1,546		2,319		3,113		(569)		(1,043)		(1,379)		(1,481)
Originated Freddie Mac loans		58		115		173		230		-		-		-		-
Acquired SBA 7(a) loans		413		827		1,240		1,654		(413)		(826)		(1,239)		(1,653)
Originated SBA 7(a) loans		98		196		293		391		(98)		(196)		(293)		(391)
Originated Residential Agency loans		-		-		-		-		-		-		-		-
Total		$ 1,891		$ 3,782		$ 5,672		$ 7,590		$ (1,399)		$ (2,706)		$ (3,864)		$ (4,774)
Liabilities
Repurchase agreements	$	506	$	1,012	$	1,518	$	2,024	$	(506)	$	(1,012)	$	(1,518)	$	(2,024)
Credit facilities		429		858		1,287		1,716		(429)		(858)		(1,287)		(1,716)
Securitized debt obligations		620		1,240		1,860		2,479		(620)		(1,240)		(1,860)		(2,479)
Total		$ 1,555		$ 3,110		$ 4,665		$ 6,220		$ (1,555)		$ (3,110)		$ (4,665)		$ (6,220)

Total Net Impact to Net Interest Income (Expense)		$ 336		$ 672		$ 1,008		$ 1,371		$ 156		$ 404		$ 801		$ 1,446

December 31,

(In Thousands)

Commitments to originate residential agency loans